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

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Howmet Aerospace

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After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your telephone keypad. To withdraw your question, please press star, then 2.

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

Thank you, Megan. Good morning, and welcome to the Hamed Aerospace second 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. In addition, unless otherwise stated, all comparisons are on a year over year basis.

With that, I'd like to turn the call over to John.

Thanks, P. T, and welcome, everyone. The results for the second quarter were strong. Revenue growth increased 9% year over year compared to 6% in the first quarter, and the revenue broke through $2,000,000,000 to $2,530,000,000 and exceeded the high end of guidance. The revenue growth enabled us to carry out the costs of the additional headcount as we prepare for the new capacity coming on at the 2025, notably for turbine airfoils and the IGT build out during 2026 and 2027.

EBITDA margins were healthy at 28.7%, up 300 basis points year over year, which was excellent given the significant sequential revenue and EBITDA growth. EBITDA was EUR $589,000,000. Free cash flow was also healthy at $344,000,000. This cash flow enables share repurchases of $175,000,000 in the quarter to total $300,000,000 in the first half, with an additional $100,000,000 already completed in July. Additionally, debt repayment was 76,000,000 We also announced an increase in the common stock dividend to $0.12 per quarter starting in August.

This is a 20% increase quarter over quarter, which builds on the significant increases in 2023 and 2024. Lastly, earnings per share was $0.91 an increase of 36% year over year. In terms of business segment commentary, Forged Wheels continues to do well with a 27.5 margin, a slight increase on the first quarter. Additionally, Structured printed another solid quarter with EBITDA margins above 20%, the exact number being 21.4%. Lastly, how many incrementals were above 60% year over year?

I'll now pass the call to Ken to comment specifically on market sector performance and provide business segment commentary.

Thank you, John. Good morning, everyone. In the deck, you'll notice that we've added Slide five, which gives you a quick snapshot of the first half performance. But we're going to move to Slide six now to talk about the markets. So end markets continued to be healthy, with total revenue up 9% year over year and 6% sequentially.

Commercial aerospace was up 8%, driven by accelerating demand for engine spares. Commercial aerospace growth is further supported by the record backlog for new, more fuel efficient aircraft with reduced carbon emissions. Defense aerospace growth continued to be robust, printing record quarterly revenue of $352,000,000 which was up 21%. Growth was driven by engine spares, new engine builds and F-thirty five structures. As we expected, commercial transportation was challenging with revenue down 4% in the second quarter, including the pass through of higher aluminum costs.

On a volume basis, Wheels volume was down 11%. Although down year over year, the Wheels team did an excellent job to flex costs and deliver strong EBITDA margin of 27.5. Finally, the industrial and other markets were up a healthy 17%, driven by oil and gas up 26% and IGT up 25%. Within helmet's markets, the combinations of spares for commercial aerospace, defense aerospace, IGT and oil and gas continues to accelerate and was up 40% in the second quarter and represented 20% of total revenue. As a compare, total spares in 2019 was 11% of total revenue on a smaller base.

So in summary, continued strong performance in commercial aerospace, defense aerospace and industrial, partially offset by commercial transportation. Now let's move to slide seven. So as usual, we'll start with the P and L. Q2 revenue, EBITDA and earnings per share were all records and exceeded the high end of guidance. Revenue was up 9% year over year, exceeding $2,000,000,000 EBITDA outpaced revenue growth, up 22%.

EBITDA margin increased 300 basis points to 28.7%, while absorbing the costs of approximately 400 net headcount additions. Earnings per share was $0.91 which was up a healthy 36% year over year. Now let's cover the balance sheet and cash flow. The balance sheet continues to strengthen. Quarter end cash balance was healthy at $546,000,000 Free cash flow was excellent at $344,000,000 which was a record for the second quarter.

Free cash flow included the acceleration of capital expenditures with approximately $100,000,000 invested in the quarter and $220,000,000 invested in the first half, which is up approximately 60% year over year. About 70% of the first half CapEx investment was in our engines business as we continue to invest for growth in commercial aerospace and IGT, which is backed by customer contracts. Debt continues to be reduced, and we paid down an additional $76,000,000 of our U. S. Term loan, which is due in November 2026.

The paydown will reduce annualized interest expense drag by approximately $4,000,000 Net debt to trailing EBITDA continues to improve to a record low of 1.3 times. All long term debt is unsecured and at fixed rates. Regarding liquidity, it 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, both of which have not been utilized. Regarding capital deployment, we deployed $292,000,000 of cash to common stock repurchases, debt paydown and quarterly dividends. In the quarter, we repurchased $175,000,000 of common stock at an average price of approximately $142 per share.

Q2 was the seventeenth consecutive quarter of common stock repurchases. The average diluted share count improved to a record Q2 exit rate of $4.00 6,000,000 shares. Additionally, in July, we repurchased $100,000,000 of common stock at an average price of approximately $183 per share. July year to date common stock repurchases is $400,000,000 at an average price of approximately $144 per share. Remaining authorization from the Board of Directors for share repurchases is approximately $1,800,000,000 as of the July.

Finally, we continue to be confident in free cash flow. We've announced an increase in the Q3 quarterly stock dividend by 20% from $0.10 per share to $0.12 per share payable this August. Now let's move to Slide eight to cover the segment results for the second quarter. The engine products team delivered another record quarter for revenue, EBITDA and EBITDA margin. Quarterly revenue broke through the $1,000,000,000 mark with an increase of 13% to 1,056,000,000.000.

Commercial aerospace was up 9%, and defense aerospace was up 13%, both driven by engine spares growth. Both oil and gas and IGT were up approximately 25%. Demand continues to be strong across all of our engines markets with record engine spares volume. EBITDA margin outpaced revenue growth with an increase of 20% to $349,000,000 EBITDA margin increased 170 basis points year over year to a record 33%, while absorbing approximately three sixty net new employees in the quarter. Year to date, Engines has invested in approximately eight sixty incremental headcount, which has a near term margin drag, but positions us well for the future.

Now let's move to slide nine. The fastening systems team also delivered a strong quarter. Revenue increased 9% to $431,000,000 Commercial aerospace was up 18%, defense aerospace was up 19%, general industrial was down 11%, and commercial transportation, which represents about 13% of Faster's revenue, was down 18%. Segment EBITDA continues to outpace revenue growth with an increase of 25% to $126,000,000 despite the sluggish recovery of wide body aircraft builds along with weakness in commercial transportation. EBITDA margin increased a healthy three sixty basis points year over year to 29.2% after taking into account the impact of delayed tariff recovery.

The team has continued to expand margins through commercial and operational performance while flexing costs in the industrial and commercial transportation businesses. Now let's move to slide 10. Engineered structures performance continues to improve. Revenue increased 5% to $290,000,000 Commercial aerospace was down 6% due to destocking and product rationalization and was essentially flat sequentially. Defense aerospace was up 49%, primarily driven by the end of the destocking of the F-thirty five program.

Segment EBITDA outpaced revenue growth with an increase of 55% to 62,000,000 despite the modest recovery of wide body aircraft. EBITDA margin increased six ninety basis points to 21.4% as we continue to optimize the structure's manufacturing footprint and rationalize the product mix to maximize profitability. Finally, let's move to Slide 11. Forged wheels revenue was down slightly despite higher aluminum cost. Excluding metal impacts, volume was down 11%.

The Wheels team flexed cost to hold EBITDA to prior year levels and delivered strong EBITDA margin of 27.5%. Lastly, before turning it back to John, I wanted to highlight on an additional item. We are reviewing the new tax legislation from the U. S. Administration related to the timing of expensing of R and D and CapEx.

We expect to have a modest free cash flow benefit in 2025, which will be used to fund additional CapEx investments. The modest benefit has been included in our increased free cash flow guide. With that, let me turn it back over to John.

Thank you, Ken, and let's move to Slide 12. Firstly, Commercial Aerospace is expected to continue to grow. Q2 growth was 8% after some further destocking in certain product areas. This growth starts with passenger miles flown, which has been solid in Europe and relatively higher growth in Asia Pacific, while flat in North America. Aircraft backlogs are extraordinarily high due to prior period underbills and the need for modern fuel and emissions efficient aircraft to replace the increasingly aged fleet.

There have been positive signs for narrow body builds with Boeing achieving a recent 38 per month build rate for the seven thirty seven MAX. We also believe Airbus has achieved 60 builds per month for the a three twentythree '21, with some 60 a three twenty's being gliders at this stage awaiting engines. Wide body builds have not increased substantially in the second quarter, but are expected to go a little higher in the fourth quarter and going into 2026. The underlying seven thirty seven MAX assumption within our guidance today is raised from 28 per month average for the year to 33 per month average for the year and supports a higher expected revenue, which I'll comment on later. Spares for commercial aerospace, defense aerospace and IGTindustrial have increased by some 40% year over year and were at 20 of total revenue.

This result is positive with a continued first half rate of it being 27% of total revenue currently. Defense revenue was up 21% and is seen to continue to exhibit this strength during the balance of year. IGT, oil and gas and industrial strength in the quarter was exceptional at 17%, with IGT up some 25%. Growth for the combined IGT oil and gas and industrial markets is expected to be high single digits for the year. And within the combined number, the IGT market is expected to be significantly higher.

Moving to Commercial Transportation. Within our Wheels segment, revenue was below $20.24 by only 1%. However, metals and tariff recovery are now included in that number. Volume was down 11% with continued softness expected in the second half. In terms of general outlook is that we expect to see continued strength in Commercial Aerospace, Defense Aerospace, IGT, Oil and Gas and with an offset only in the Commercial Truck segment, which continues throughout this year.

In 2026, the commercial truck market should stabilize, and hence, the overall picture for HAMET currently appears to be healthy. In terms of specific guidance, we see the third quarter as follows: revenue, 2,030,000,000.00, plus or minus EUR 10,000,000 EBITDA, EUR $580,000,000, plus or minus EUR 5,000,000 EPS at zero nine zero, plus or minus EUR $0.01. Q3 reflects the normal seasonality of lower European selling days due to annual vacations. The year's full guidance has been increased. Revenue has been increased by $100,000,000 to $8,130,000,000 plus or minus $50,000,000 EBITDA has been increased $70,000,000 to $2,320,000,000 plus or minus 20,000,000 Earnings per share has been increased by $0.20 to $3.6 plus or minus $04 Free cash flow has been increased $75,000,000 to $1,225,000,000 plus or minus 50,000,000 Revenue, EBITDA and EBITDA margin have been increased above the second quarter beat.

The higher revenue expectation is supported by both an increased spares expectation and the higher Boeing seven thirty seven MAX rate assumption. Full year incrementals continue to be healthy at the mid-fifty percents within and with the second half in the mid-40s. The increased cash flow guidance includes an increase in our capital expenditure guidance to invest in future revenue growth with modest expected benefits from the new tax legislation. It is encouraging to see our guide increase, especially the free cash flow guide, which provides even further optionality for capital deployment. And with that, we'll now move to your questions.

We will now begin the question and answer session. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. We ask that you please limit yourself to one question only. At this time, we will pause momentarily to assemble our roster. Our first question comes from Myles Walton with Wolfe Research. Please go ahead.

Wondered if, John, you can comment on the rationalization of products within structures. How meaningful is that?

Is is it, going to be to the margins as well as maybe any headwind, to departing from from some lines of businesses or products?

The majority of the rationalization, has already occurred, on this on Miles. And so if you go back to, commentary provided in the two prior earnings calls, I mentioned the sale of one business within structures and also the closure of another manufacturing plant, which was in Europe. And those two combined with us, probably possibly being a little bit more discerning, on order intake has enabled us to, continue the momentum on, improved margins. So the way I see it is that revenues continued to, to be healthy and grow, and margins have solidified. And and I and I quite like, again, it's the and conversation doing a revenue increase and, and margin enhancement, and which has played well for the company.

The total revenue, which, in our structures business was, you know, certainly healthy from the defense side, less so from the commercial aerospace side, But that was, essentially due to some destocking, particularly in the, I will say, distribution markets where some orders had been cut, I think as, I think Boeing in particular decided to, to to do some destocking throughout their their supply chain. So I'm not expecting significant further rationalizations, but we always remain alert for anything where, if it doesn't really contribute in a significant way to improving the business, then we'll always take a hard look at it.

So should we expect the margins seen year to date to persist for the second half within structures at these new levels?

Well, was our goal for the second quarter. And I will say, yes, we did achieve it. And so my expectation is that we'll hopefully maintain where we are. So that would be a pretty significant increase year on year. And you'll see from the guide that, we've maintained our margin outlook of EBITDA, above 28%. So that assumes that we'll achieve that objective.

Our next question comes from Sheila Kahyaoglu with Jefferies. Please go ahead.

Good morning, John and Ken. Crazy good results. So can you hear me, by the way? My voice is a little hoarse.

And by the way, thank you for the thank you for the compliment. Heck. I I like the word crazy good.

Yes. Very good. If you could update us on the timing of maybe the revenue contributions from the various engine expansions you've announced, across Aero and IGT as it seems like CapEx is increasing and pulling forward. Is it fair to think unlike other companies profitability on day one? Are those sites dilutive to the segment?

How do we think about pricing expected volumes? And just what are the key pacing items for those coming online?

Okay. So we've got two complete new plants, which are being or have been built, in the engine segments and two significant extensions. So that's that's a lot of square footage that we've been putting in place. The first plant that we have essentially completed now in terms of the construction equipment that has been arriving is in our Michigan facilities. And, you know, I'm expecting some outputs from that, that's saleable output in the fourth quarter of the year going into 2026.

And I think that's going to be important for us, particularly in turbine airfalls market. And that's supported by the extension that we have done in one of our Tennessee plants. So that covers that one. The other two are aimed at the industrial gas turbine market. Again, these are large to the large industrial gas turbines rather than the aero derivatives.

And that is a brand new manufacturing plant in in Japan for which that construction will not be completed until the end of this calendar year and then just to sell itization in the first quarter, probably going into the 2026 and therefore, hoped for output in the 2026. And then an extension of our plant in Europe, again, with similar time frames with so the expansion and capitalization in terms of assets which can produce parts leading to the in the 2026 and then with them both coming on full bore for 2027. So that gives, the the picture across, say, the aerospace business and the gas turbine business. So quite a lot going on, Sheila.

And how do we think about the the profitability profile of those coming online?

I'm expecting that, any costs that we incur, and we've been incurring costs each quarter, you've seen another headcount increase in the second quarter of, just under 400 net new jobs into our engine business. Clearly, we're those, those employees today, and, essentially, let's say, training and getting ready for production. And so, the the the drag associated with that has really been offset by the the leverage of of the volume, increased volumes, and so it's it's working out. And I'm hopeful that, as those things in terms of launch costs smooth out as we go into 2026, particularly in the second half and in 2027, that those can really get better and enable us to hopefully produce an improved outlook for the business, which is also, I'd say, pretty high today. So that's the expectation, and it's a combination of we hopefully reduced labor cost drag and also less production of scrap because obviously people are still training and using materials which are which then don't get sold at this current stage.

Our next question comes from Steph Seifman with JPMorgan. Please go ahead.

Hey, thanks very much and good morning everyone.

Good morning. John, you talked about the strength in the defense end market this quarter and expect continued strength going forward. I guess if you could talk a little bit about the contribution of F-thirty five in defense overall this year and how you think about, setting up for the future in F-thirty '5, given some concerns about future production rates?

Yeah. So this year, I'd point to just on the F-thirty five. I think generally, the, defense business has been strong with the legacy programs as well. But specifically for the F-thirty five, we received, I think, two volume inputs, which, have been quite welcome. One is that, we appear to have arrived at the tipping point when our spares business for our engine products, exceeds the OE production.

And so that that which we've been talking about would happen in 2025 for the last two or three years. It looks as though, it it it that moment has arrived. And with the increased build, let's assume a 150 aircraft per month sorry, per year for the next few years through the end of the decade means that the fleet will continue to expand from its 1,100 to maybe 2,000 aircraft. And therefore, again, we see increasing contributions coming for those for that spares business as we go forward. The second, input to the F 35 volume has been, during 2023 and 2024, I noted that our bulkhead provision from our structures business, we were receiving input orders well below the Lockheed production rates as inventory was burnt off from the, I'll say, excess supply relative to their COVID impaired builds back in 2020 and 2021.

And so, as that inventory was depleted, we're now running at a one to one rate, we believe, relative to relative to Lockheed's production. And and we are also optimistic that with the large input of new orders that have been there to interlock it for the, also international programs for that fighter aircraft that we'll see solid one fifty per year rates through to the end of the decade and beyond.

Our next question comes from David Strauss with Barclays. Please go ahead.

Hey, John. So I think you talked about your forecast for MAX for the year. If you wouldn't mind running through your assumptions your other key programs, '87, three fifty, so on. And then a quick one for Ken. Just if you could quantify, Ken, the amount of the tariff drag Thanks.

Okay. So in terms of underlying assumptions, the major shift from previous commentary was that MAX shift from the average of 28 per month for the year to 33. And that basically assumes that Boeing will consistently maintain rate 38 for the balance of the year, having come off a significantly lower rate in the early part of the year. Seven eighty seven, should be around six average for the year with us moving to a rate seven, I think, in the second half. So sometime, I'll say, during the third quarter or by end of third quarter, a solid rate seven on a consistent basis.

On Airbus A350, it's the same six till we, understand more about, some of the relief of the fuselage constraints there. And the the other bright spots, which, is is not really confusing at this stage is, well, A320, the builds have been solid. We're still unclear about whether that build will be maintained, and that's also really subject to the supply of engines because of the state of aircraft, you know, the quantity of aircraft with with no engines at this point in time. So that covers the the major part of it. And I'll I'll cover tariffs rather than break the call up.

It's you know, we gave you some metrics around, the gross and net effect of eighty and fifty, on the last call. Since then, Tash Grag, we think, has probably gotten better. So if we ask, to name it today, we'd be going a net effect below 15. But, again, as I said, it wasn't going to be material for a year. And, so let's say, if it was reduced, which it is, it is not significant.

So, that's been good. And tariff drag for the second quarter was, which is the probably the biggest quarter of drag, but get cop shows that everything's, you know, sorted out was, was below $5,000,000 just significantly below And $5,000,000 in the as you said, it was down to timing of us incurring the cost and us receiving compensation from our customers.

Our next question comes from Doug Harned with Bernstein. Please go ahead.

Good morning. Thank you. So industrial is now the fastest growing part of engine products. And is the accelerated growth you're looking at, how does that depend on getting long term agreements in place such as with Mitsubishi? And basically, where you stand on this process? And ultimately, how do you expect IGT margins to compare with those in commercial aero?

Okay, so do with the margin one first, is that IGT and aero are very comparable in terms of margins, so there's no dilution at all from that currently relatively high growth rates that we see. So that's encouraging. And then, in terms of agreements, we've, now have agreements with, I will say, three of the four majors and completing with the other one in terms of the gas turbine area, yes, the big gas turbines. And we've also just completed agreement with, let's call it, the not aero derivatives, but something like that with gas turbines in the up to 35, 38 megawatt type of output. And so business in aeroderivatives is also very strong.

And it's sometimes a little bit hard for us to truly understand when we receive the orders that which is designated for oil and gas or aero derivatives, and then those derivatives going to whether it's the, I'll say, marine market or, other military bases or oil and gas or indeed IGT, but the the growth rate of aero derivative type of the size of it of, of turbines is is certainly becoming very significant. And, the the way we see it is gonna be a really important part of data center build out of energy supply over the next few years.

Is there any way to say when you structure these agreements, how soon that growth will come from an individual agreement?

Yes. From an individual agreement, we know pretty well the growth that we'll see. Obviously, it's always dependent upon the complete supply chain. It's not just what HAMMET does in terms of vision of the turbine airfoils. But assuming that everybody's, you know, on stream for those program those new project introductions, then we have a pretty good idea of when the increased requirements are there.

And, essentially, it lines up with my commentary that I provided earlier in the call, Doug, where, you know, we've we're putting capacity in, and we're seeing increments of that capacity currently, but with the majority of it to come on stream in the 2026 and into 2027. You know, there's no there's no major step function this year for sure, lower capacity because when we stepped it up last year, and, again, it takes, you know, a full twelve, eighteen months for us to be gone. And we've been, as you can see from our CapEx numbers, been increasing that significantly as we've been moving through 2025, and that takes time to deploy. And we kicked it up again by some $40,000,000 by way of expectation in the for this year. So it's a significant outlay that we believe will give us good results and good growth into the future.

Our next question comes from Robert Stallard with Vertical Research. Please go ahead.

John, last quarter, you talked about your worry beads. And it does sound like you're a little bit more confident about some of the issues like tariffs or the Boeing build rates, than you were three months ago. But I was wondering if there's anything else on your worry radar that we should be worried about.

Well, not really. I mean, I can't call the commercial truck market precisely because, you know, we're not sure whether any, I'll say, volume points we may have seen from the, additional emissions requirements for '27 will result in, you know, security of volumes in the next twelve months. We don't know whether those emissions regs will continue to apply. It depends on what the the the new administration, Disney, ultimately decides. Or, basically, everybody's now prepared for those new emissions by way of equipment for the truck.

That's that's one where it's it's difficult to be absolutely certain. We've tried to be on the cautious side of those assumptions. And so, you know, thinking that '26 is similar to '25, but could be better. So that's you know, the the important thing there is, you know, we don't think it's gonna get worse, and so that's great. Elsewhere at the moment, things appear to be pretty solid

Defense aero budgets, particularly for Europe, are going up. F thirty five, to us, seems solid, and we know we've got enhancements coming from the from the block four coming in 2028, unless that's delayed another year or so. So that that is looking helpful. And the the, you know, IGT or error derivatives for the, data center, this is all solid. So, I mean, I still have my you know, the I'm always I think I'm worried.

I'm paid to worry about things. And, providing I do it, then you don't have to.

Sounds sensible. Alright. Thanks a lot, John.

Our next question comes from Peter Arment with Baird. Please go ahead.

Yes. Good morning, John, Ken, PT. Nice results. Hey, John, you've talked a lot about in the past about headcount and basically, I think in some of your plants, you're producing more parts today than you were, say, in 2019, and you're doing it with a lot less people. And fasteners this quarter added no people and you had great growth.

So maybe just talk a little bit about what you're seeing on the headcount in the productivity that you're actually seeing amongst your various plants? Okay.

So I think our productivity numbers for three of our divisions has been really solid. That's clearly not the case in aggregate for our engine business just because of the all the amount of people we've been recruiting in preparation for the for, you know, I'll say, future capacity. Yeah. There's underlying, you know, productivity improvement, adding in those gross numbers of maybe 1,500, 1,800 people over the last, twelve, eighteen months is obviously, to some degree, you know, weighing on us as we as we go through this. But productivity for the company has been solid.

It has been helped by some of the automation that we had put in, over the last, I'll say, two or three years. Albeit now, we're slightly pausing on the automation, given our thirst for capital, really for capacity. And so where we're putting new equipment in, we're trying to ensure that's at a highly automated level. But we're not yet going back and still completing some of the projects that we know we could do just so we can stay within our marks for capital and, I'll say, free cash flow yields, substantive net income where we aspire to get to that 90% on average over the period of time. But the important thing is for us to serve the markets, gain the market share, and then if we have the opportunity, let's say, in '27 or '28 to go back and focus and refocus on some of the, the automation and further labor productivity opportunities that we have.

So our pass through is, currently, let's build and focus on the capacity and share, and then we'll go back and mop up in a couple of years' time any remaining productivity opportunities that we know we have, which we just can't currently focus on at the moment.

Howmet Aerospace (HWM) Q2 2025 Earnings Call Transcript

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