Howmet Aerospace Inc. Q1 FY2025 earnings call

• Q1 was a solid start to the year with record revenue up 6%, EBITDA margin 28.8%, operating margin 25.3% up 500 basis points year-over-year, and free cash flow $134 million. • All segments grew revenue and EBITDA compared to Q4 2024, with notable margin progression in Fastening Systems and Structures. • End markets: Commercial Aerospace up 9% year-over-year driven by engine spares demand; Defense Aerospace up 19% year-over-year; Commercial Transportation down 14% but up 2% sequentially; Industrial and other markets up 10% with oil and gas up 21% and IGT up 12%. • Balance sheet strengthened with quarter-end cash balance $537 million, free cash flow a record $134 million, net debt to trailing EBITDA at 1.4x, and Fitch ratings upgraded to BBB+. • ESG progress highlighted with 21.7% reduction in greenhouse gas emissions vs 2019 baseline and annual ESG report issued.

Engine Products: Revenue increased 13% year-over-year to $996 million. EBITDA outpaced revenue growth with an increase of 31% year-over-year to $325 million. EBITDA margin increased 450 basis points year-over-year to 32.6%. Fastening Systems: Revenue increased 6% year-over-year to $412 million. Year-over-year, EBITDA outpaced revenue growth with an increase of 38% to $127 million. EBITDA margin increased an excellent 710 basis points year-over-year to 30.8%. Engineered Structures: Revenue increased 8% year-over-year to $282 million. Year-over-year, segment EBITDA outpaced revenue growth with an increase of 62% to $60 million. EBITDA margin increased an excellent 720 basis points to 21.3%. 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, the Forged Wheels team delivered a healthy 27% EBITDA margin.

• Q2 guidance: Revenue of $1.99 billion, plus or minus $10 million; EBITDA of $560 million, plus or minus $5 million; and earnings per share of $0.86, plus or minus $0.01. • Full year guidance: Midpoint of revenue guidance similar to prior quarter; strength in Commercial Aerospace due to spares on Boeing 737 build rate assumptions raised to average 25 per month; offset by less certain Commercial Truck builds in second half; revenue $8.03 billion, EBITDA baseline $2.25 billion plus or minus $25 million, EPS baseline $3.40 plus or minus $0.04, free cash flow baseline $1.15 billion plus or minus $50 million.

• Tariffs increase uncertainty and reduce confidence in air travel, with net tariff costs expected to be passed on to customers with up to a quarter lag. • North American economic uncertainties and road freight concerns driven by tariffs affect Commercial Truck builds. • Uncertainty around wide inflation assumptions. • Potential rare mineral supply issues including yttrium, gadolinium, etc.

Q: Seth Seifman with JPMorgan asked about how much air travel growth matters to the outlook, given protection from OEM backlogs and aftermarket demand.

A: John Plant said overall demand for travel is important for 2026-2027, but aircraft manufacturers have high backlogs, though current economic policies in US make near-term uncertain.

Q: David Strauss with Barclays asked about progress on yield on upgraded 1A blades and timing of OneBlade upgrade certification.

A: John Plant said production is going to plan, ahead of engine manufacturing requirements, and LEAP 1B certification is likely by end of calendar year.

Q: Doug Harned with Bernstein asked about margin growth in Fastening Systems and Engineered Structures, drivers and sustainability.

A: John Plant said for Structures, improved process control, scrap reduction, productivity, mix effect, and price contributed, and margins are sustainable with continued efforts.

Q: Robert Stallard with Vertical Research asked about 737 and wide-body production.

A: John Plant said 787 ramp rate delayed, A350 componentry issues, 737 build rate increased to average 28 per month, with pickup in production seen in latter part of Q2.

Q: Myles Walton with Wolfe Research asked about Fastening margins and share gain contracts.

A: John Plant said no notable revenue from PCC fire tightness in quarter, orders booked but still hundreds of parts to quote, expecting orders to increase but not reaching $100 million by end of year.

Q: Kristine Liwag with Morgan Stanley asked about incremental margins once 737 MAX and 787 reach higher rates and capital return priorities.

A: John Plant said hard to predict exact margins due to rate swings and uncertainties, but company has good record of returning cash flow to shareholders, with plans for increased share buyback and dividend.

Q: Ron Epstein with Bank of America asked about tariffs and rare earth minerals.

A: John Plant said gross tariff impact worst case $80 million, net impact less than $15 million, and rare earth minerals like yttrium have sufficient inventory, others with some concerns but manageable.

Q: Sheila Kahyaoglu with Jefferies asked about Q1 margins relative to full year guidance and sustainability of Q1 levels.

A: John Plant said tariff dampening, Commercial Truck production step down, and inventory effects contribute to margin expectations, with sustainability depending on various factors.

Q: Scott Deuschle with Deutsche Bank asked about spares growth by end market and engine part destocking.

A: John Plant said spares growth in Commercial Aero and Defense over 40%, IGT and Oil and Gas around 15%, and LEAP engine LPT overhang still exists with production rate impacting destocking.