Howmet Aerospace Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are with Q1 2023 unless stated otherwise. Amounts are in U.S. dollars, in millions except per-share amounts. Howmet makes lightweight metal products for aerospace, commercial transportation, and industrial markets.
Financial performance and position
| Metric | Q1 2024 | Q1 2023 / prior date |
|---|---|---|
| Sales | $1,824 | $1,603 |
| Operating income | $369 | $285 |
| Net income | $243 | $148 |
| Net income attributable to common shareholders | $242 | $147 |
| Diluted EPS | $0.59 | $0.35 |
| Cash provided by operations | $177 | $23 |
| Capital expenditures | $82 | $64 |
| Cash and cash equivalents at period end | $533 | $610 at Dec. 31, 2023 |
| Total debt, including current portion | $3,692 | $3,706 at Dec. 31, 2023 |
Sales rose 14%. Cost of goods sold was 70.7% of sales versus 72.6% a year earlier. Operating margin was approximately 20.2% versus 17.8%; net margin was approximately 13.3% versus 9.2%. Segment Adjusted EBITDA, a non-GAAP measure, was $460 versus $379.
Operating cash flow improved by $154, principally from stronger operating results and more favorable working-capital movements. Receivables and inventory increased during the quarter, while accrued expenses declined. Cash used for financing was $178, including $150 of common-stock repurchases and $21 of dividends; cash used for investing was $75. Cash flow from operations less capital expenditures was $95.
At March 31, current assets were $3,340 and current liabilities were $1,698. The $1,000 revolving credit facility was undrawn, and Howmet reported compliance with debt covenants. The company had $206 of debt due within one year, including $205 of 5.125% notes due October 2024. The filing reports no full-year revenue or earnings guidance.
Segments and changes versus prior year
- Engine Products: Sales $885, up 11%; Segment Adjusted EBITDA $249, up 17%; margin 28.1% versus 26.7%.
- Fastening Systems: Sales $389, up 25%; Segment Adjusted EBITDA $92, up 59%; margin 23.7% versus 18.6%.
- Engineered Structures: Sales $262, up 27%; Segment Adjusted EBITDA $37, up 23%; margin 14.1% versus 14.5%.
- Forged Wheels: Sales $288, approximately flat; Segment Adjusted EBITDA $82, up 4%; margin 28.5% versus 27.3%.
Management attributed growth mainly to higher commercial and defense aerospace volumes and favorable pricing. Commercial aerospace demand recovery supported results, including wide-body activity. Lower interest expense also contributed to higher earnings. SG&A increased 17%, mainly due to employment and legal costs; other expense rose to $17 from $7, primarily reflecting higher foreign-currency and realized/unrealized losses. The effective tax rate including discrete items fell to 19.8% from 32.7%, including a $7 discrete tax benefit in 2024 versus a $21 discrete charge in 2023.
Outlook, risks, and notable items
- Management expects 2024 demand versus 2023 to increase in commercial aerospace, defense aerospace, and certain industrial markets served by Engine Products, Fastening Systems, and Engineered Structures. It expects commercial transportation demand for Forged Wheels to decrease in most regions.
- Management expects wide-body commercial aerospace demand to grow faster than narrow-body demand on a production-percentage basis. Boeing quality-control issues and FAA restrictions on 737 MAX production increases are expected to weigh on narrow- and wide-body production in the near term; Boeing production has a material effect on Howmet.
- Howmet expects approximately $65 of pension contributions and other postretirement benefit payments in 2024. Non-service pension and postretirement costs are expected to increase approximately $5 for full-year 2024 versus 2023.
- On April 4, 2024, Howmet established a commercial paper program of up to $1,000 for general corporate purposes. Management believes cash, operating cash flow, credit-facility availability, the commercial paper program, and receivables securitization provide sufficient funding, including for debt repayment; refinancing plans for 2024 and 2025 maturities remain under evaluation.
- A recall initiated by Daimler Truck North America and Transport Canada concerns specified wheels made in Mexico during November 2022–August 2023 following reports of potential rapid air loss. Howmet says its investigation has found the reports unsubstantiated and does not currently expect a material operating impact; investigation continues.
- The French tax dispute relates to 2010–2012 and other open tax years. Howmet recorded a $21 tax reserve in 2023, paid the assessment in December 2023, and expects to pay additional interest in 2024 while appealing. A successful appeal could result in refunds with interest.
- Lockheed Martin and Howmet reached a confidential settlement on April 2, 2024, concerning F-35 titanium supply pricing; the parties agreed to supply under revised terms through December 31, 2026. The filing says the settlement had no material impact on current-year results.
- Environmental remediation reserves were $17. Other legal matters remain subject to uncertainty; management does not expect pending matters to have a material adverse effect based on currently available information. Howmet also disclosed guarantees, letters of credit, and surety bonds, including a contingent guarantee associated with an Alcoa energy-supply agreement; management views default risk as remote.
Important facts for investors to verify
- Whether Boeing production constraints or broader OEM build changes alter aerospace volumes, product mix, and Howmet’s results.
- How 2024 and 2025 debt maturities will be refinanced or repaid, and whether operating cash flow and liquidity remain adequate.
- Progress and potential costs of the wheel investigation and recall, and the outcome and payment timing of the French tax appeal.
- Cash conversion and working-capital trends, including reliance on receivables-sale programs; the securitization facility was fully drawn at $250 at quarter-end.
- Whether planned capacity expansion, hiring, and capital spending support demand without sustained pressure on margins.