Howmet Aerospace Inc. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Fourth Quarter Results: Closed 2024 with healthy results, exceeding guidance. Fourth quarter EPS was $0.74 (+40% y/y), full year EPS $2.69 (+46% y/y). Operating margin 23%, free cash flow $977 million (record), net debt to EBITDA 1.4 times.
• End Markets: Commercial aerospace grew 13% Q4, 20% full year; defense aerospace up 22% full year; commercial transportation down 12% Q4, 7% full year; industrial up 11% Q4, 9% full year. Spares revenue $1.28 billion (17% of total, +25% full year).
• Balance Sheet and Cash Flow: Free cash flow $977 million (record), CapEx $321 million (record), S&P and Moody's rating upgrades, strong liquidity with $565 million cash and $1 billion undrawn revolver.

Segment Performance

• Engine Products: Fourth quarter revenue increased 14% year over year to $972 million, with EBITDA up 30% to $302 million and EBITDA margin 31.1%. Full year revenue was $3.7 billion (+14% y/y), EBITDA $1.15 billion (+30% y/y), and EBITDA margin 30.8%.
• Fastening Systems: Fourth quarter revenue rose 11% to $401 million, EBITDA up 39% to $111 million, and EBITDA margin 27.7%. Full year revenue was $1.6 billion (+17% y/y), EBITDA $406 million (+46% y/y), and EBITDA margin 25.8%.
• Engineered Structures: Fourth quarter revenue increased 13% to $75 million, EBITDA up 55% to $51 million, and EBITDA margin 18.5%. Full year revenue was $1.1 billion (+21% y/y), EBITDA $166 million (+47% y/y), and EBITDA margin 15.6%.
• Forged Wheels: Fourth quarter revenue was down 12% y/y, EBITDA down 8% y/y, but EBITDA margin remained 27.2%. Full year revenue was $1.1 billion (-8% y/y), EBITDA $287 million (-7% y/y), and EBITDA margin 27.2%.

Guidance

• Q1 2025: Expected revenues $1.935 billion ±$10 million, EBITDA $520 million ±$5 million, EPS $0.76 ±$0.01.
• Full Year 2025: Revenue $8.03 billion ±$100 million, EBITDA $2.13 billion ±$25 million, EPS $3.17 ±$0.04, free cash flow $1.075 billion ±$50 million. Midpoint revenue guide up from 7.5% to 8%+.

Risks

• Tariffs: Fluid situation, need to pass on costs but well positioned due to commercial agreements.
• Visibility: Uncertainty in narrow body aircraft builds, supply chain challenges, and timing of GTF and LEAP engine changeovers.

Question and Answer

Q: On fastening systems, can you talk about margin improvement and future leverage?

A: Fastening systems have seen margin improvement due to operational and commercial improvements, with mix and future wide body build-ups expected to drive further margin growth.

Q: What's the rationale behind cautious guidance?

A: Cautious due to uncertainty in narrow body builds, supply chain challenges, and lack of visibility on some engine changeovers.

Q: What's the status of 737 production and purchase orders?

A: Fourth quarter wasn't stellar for Boeing requirements, but current guide accounts for inventory cuts, with potential acceleration in later years.

Q: Explain product rationalization in engineered structures and GTF certification timing?

A: Product rationalization involved closing facilities and selling underperforming units. GTF certification awaits final approvals, with expectation of mid-2025 changeover.

Q: Outlook for industrial gas turbines?

A: Strong growth prospects due to data center demand and natural gas focus, with Howmet well-positioned as a global leader in turbine blades.

Q: Cash guide assumptions and share buyback plans?

A: Working capital burn ~$180 million, share buyback expected to exceed 2024 levels as balance sheet is strong.

Q: Engine margins in Q4 and 2025 outlook?

A: Q4 margin change was noise; 2025 outlook positive with structures expected to show significant margin improvement.

Q: Place of structures in the portfolio and capital deployment?

A: Structures is a margin-improving business, earning right to additional capital deployment, with positive outlook for 2025 margins.

Q: Spares growth assumptions and aerospace outlook?

A: Spares growth to continue, with CFM56 demand pushed to later years and LEAP engine spares demand expected to rise.