The Howmet Aerospace First Quarter 2024 Earnings Conference Call began with an introduction from the operator and Paul Luther, Vice President of Investor Relations. John Plant, Executive Chairman and CEO, and Ken Giacobbe, Executive VP and CFO, then gave their comments, followed by a question-and-answer session. The discussion included forward-looking statements and non-GAAP financial measures. John Plant highlighted the outstanding performance of Q1 2024, with record revenue, profit, margin, and earnings per share, all of which exceeded guidance and showed a 14% increase compared to the previous year.

In the first quarter, the company saw strong financial performance, with EBITDA increasing by 21% and operating income up by 27%. Earnings per share also saw a significant increase, driven by a low tax rate and currency favorability. The company also had positive cash flow for the first time in Q1, and used some of it to repurchase shares and pay dividends. The markets were also healthy, with commercial aerospace and defense aerospace showing strong growth, while commercial transportation remained resilient in a challenging market.

In the third paragraph, the company discusses their revenue growth and strong performance in various markets, including a 14% increase in revenue and a 21% increase in EBITDA. They also mention their record-high EBITDA margin and earnings per share, as well as their strong balance sheet and cash flow. The company has maintained a low net debt to EBITDA ratio and has recently received an investment grade rating from Moody's. They have also deployed cash to repurchase common stock.

In the first quarter, the company had its 12th consecutive quarter of common stock repurchases and improved its average diluted share count to a record low. They also deployed $20 million for their quarterly common stock dividend. The Engine Products segment had a strong performance with an 11% increase in revenue and a record EBITDA of $249 million. Fastening Systems also had a strong quarter with a 25% increase in revenue and a 59% increase in EBITDA. Engineered Structures saw a 27% increase in revenue and a slight decrease in EBITDA margin.

In the third consecutive quarter, Howmet's revenue, EBITDA and EBITDA margin increased. The company expects continued improvements throughout 2024. Forged Wheels revenue was flat, but EBITDA increased by 4% and EBITDA margin was at 28.5%. Howmet is committed to managing energy consumption and reducing its environmental impact. The company has achieved a 20% reduction in greenhouse gas emissions from 2023 compared to 2019 and is on track to meet its 2024 goal of a 21.5% reduction. The company's annual ESG report reflects its progress and sets a goal of a 33% reduction in greenhouse gas emissions by 2027. In the commercial aerospace market, demand for air travel is strong and constrained by the availability of new aircraft. Asia-Pacific travel has also been increasing rapidly and is now at 90% of pre-pandemic levels.

International travel in the Asia-Pacific region has increased by 50%, indicating a potential increase in demand for wide-body aircraft. However, due to ongoing quality issues at Boeing and FAA restrictions, production of the 737 MAX has been reduced to 20 aircraft per month, significantly lower than the target of 38 per month. As a result, Howmet has replanned their year and expects a $200 million increase in revenue for 2024. Airbus production is expected to remain strong, but there may be a decrease in Boeing production in the second half of the year.

In the second quarter, we expect revenue to be $1.835 billion, EBITDA to be $440 million, and earnings per share to be $0.58. For the year, we anticipate revenue of $7.3 billion, EBITDA of $1.75 billion, and earnings per share of $2.35. Our free cash flow is expected to be $800 million, and we plan to increase our dividend payout by 40%. Our capital allocation plan includes increased capital expenditures and share buybacks, while also maintaining the ability to pay down debt. We aim to reach a net debt-to-EBITDA ratio of 1.5x by the end of the year. Overall, we are pleased with our strong performance and are confident in our future outlook.

The speaker discusses the company's recent financial performance, highlighting a 35% EBITDA margin and 20% operating margin. They mention the impact of reduced narrow-body builds from Boeing and their revised plans for the year, including increased revenue and cash flow. They also mention a planned increase in dividend and a clear capital allocation plan. The speaker then addresses a question about the MAX, stating that they saw rate 38 in the first quarter but are unsure of Boeing's plans for the future.

The company is concerned about the increase in Boeing's inventory due to the assumption of a production rate of 38 per month. They are being cautious in their assumptions and have lowered their minimum delivery levels to prevent being caught with excess inventory. They are also preparing for the possibility of schedule cuts and have adjusted their cash flow accordingly. Additionally, they mention that GE has changed their requirements for the LEAP-1B engine.

The speaker discusses the expectations for engine production in the upcoming year, stating that there will likely be a 10-15% increase year-on-year. They also mention the challenges of balancing demand from different companies, such as Airbus and Boeing. The speaker notes that they will provide more information during the Q&A portion of the call. In response to a question about Boeing's production rates, the speaker states that they have lowered their assumption for the 787 from six to five aircraft per month.

The speaker is uncertain about the production rate of the 737 and mentions that they have been producing ahead due to supply constraints from Boeing. They also mention that the rate may increase in the second half of the year and could potentially reach 10 aircraft per month in 2026. The speaker also discusses the potential for a higher rate in 2025 and explains their decision to only decrease to five aircraft per month in 2024. They also mention the possibility of ramping up production quickly if needed.

The speaker is discussing the company's plans for rate 38 and the potential for GE to increase the planned rate for LEAP engines. They believe they have enough flexibility to handle this increase in rate and are confident in their labor recruitment strategy. The speaker also mentions that their commercial aero sales have outpaced those of Boeing due to their strong operational and commercial performance. They expect further margin improvement as they continue to increase their rate of production.

Despite the fact that metallic fasteners do not have the same quality as composite materials, Howmet is still seeing positive results due to the increase in rate for the Airbus A350, which is a composite-based aircraft. However, they are being cautious about the impact of the rate reduction for the 737 and are expecting weakness in their commercial wheels business in the second half of the year. Despite this, they were able to achieve a 26.5-27% EBITDA margin, which is a good result.

In this paragraph, John Plant discusses the company's cautious assumptions about the commercial truck and Boeing MAX production in the second half of the year. He also mentions the company's improved durability in their blades and how it may affect their revenue. They expect a hit from the reduction in the MAX rate, but also anticipate an increase in reimbursement from defense sales and strong performance in other sectors such as oil and gas.

The company expects a mid-single-digit increase in IGT and industrial for the year, with a projected increase of $60 million for MAX aircraft. The company is also expecting a 25% increase in spares business year-on-year, with a significant increase in spares revenue compared to 2019. The company has not yet seen the peak of spares for the CFM56 engine, and expects the LEAP engine to continue generating revenue until at least 2030. The company also expects to see an increase in revenue from the time on wing issue for both the LEAP engine and the Geared Turbofan.

In the next few years, there will be a gradual introduction of improved turbine blades, which will have a significant impact on asset economics and spares demand for CFM56, LEAP, and Geared Turbofan engines. The aftermarket is expected to see a boost of around $100 million this year, and there is potential for continued growth in the following years due to increased use of legacy aircraft and potential delays in CFM56 peak. Overall, commercial aerospace sales are expected to increase in 2025, 2026, and 2027.

John Plant, CEO of a company, discusses the future of spares revenues for F-35 turbine blades and the potential for increased demand. He mentions the current rate of production and usage for F-35s and predicts a large fleet of F-35s in the future. He also mentions the potential for improved turbine componentry in the future. A question is then asked about the fastening unit and Plant discusses the outstanding growth in the commercial aero sector, with about 1/3 of the business being distribution. He mentions the possibility that distributors are pulling due to anticipated scarcity.

John Plant, CEO of Howmet Aerospace, discusses the success of their program to create a separate segment for distribution within their fasteners business. This has resulted in a significant increase in business and improved margins. However, Plant is hesitant to say they will achieve 2019 levels of margin rates due to current market conditions and the uncertain production rates of aircraft manufacturers. He jokes about not wanting to make any guarantees and avoids making any predictions.

During an earnings call, John Plant, the CEO of a company, clarifies that the commercial airfoils are close to $550 million in 2024. He also mentions that the defense spares for last year were already growing and that the company's margins have improved by 100 basis points due to improved labor efficiency and their ability to manage through potential volatility. The company has guided to a 24% EBITDA margin for the year.

John Plant, the CEO of the company, believes that the company can maintain a 24% EBITDA margin percentage through hard work and productivity, despite the fact that things may not always progress in a straight line. The company has seen significant progress in the second half of last year and expects to continue this trend by increasing productivity and maintaining price levels. The company has also been able to achieve this without increasing labor costs, and they anticipate being able to sustain this in the second half of the year.

The speaker responds to a question about the company's ability to adjust production in response to customer demand. They explain that they do not have dedicated plants for specific customers and are able to deliver to multiple customers from most plants. However, the mix of products can make a difference, as seen in the past when production of a specific aircraft was halted. The speaker also addresses a question about their future plans with the company.

The company has seen improvement in their fasteners business due to recovered fixed costs. However, there are still challenges in other areas of the business, such as the engine business and core manufacturing facilities. The company's control over their brand and design in the wheels business has been beneficial. The CEO does not have any immediate plans, but is waiting for the aerospace industry to fully recover before making any decisions.

In this paragraph, John Plant discusses the unexpected Alaska Airlines incident and its impact on production for both Boeing and Airbus. He expresses confidence that things will improve and mentions that he may have a plan in the future. The next question from Ronald Epstein is about the need for the supply chain to invest in tooling for the upcoming ramp. John Plant responds by stating that they will be increasing their CapEx to accommodate this ramp and will have an elevated investment requirement in 2025 as well. He mentions that there will be a large increase in aircraft engine demand for both commercial and defense, necessitating these investments.

The company is planning to make a significant investment of around $200 million in one of its engine companies, with the possibility of more investments in the future. This is due to the strong performance and potential returns of the business. However, there will be a more restrained investment in the structures business, particularly in titanium production due to geopolitical risks. The company is still increasing production and taking on more market share, but is cautious about putting in more capital due to the long timeline and uncertainty surrounding political events.

This summary was generated with AI and may contain some inaccuracies.