The operator welcomes participants to the Howmet Aerospace Second Quarter of 2024 Earnings Call, which is being recorded. Paul Luther, Vice President of Investor Relations, introduces John Plant, Executive Chairman and CEO, and Ken Giacobbe, CFO. The discussion will contain forward-looking statements and references to non-GAAP financial measures. John Plant highlights the company's strong Q2 results, which exceeded guidance and prior year results.

In the second quarter, the company saw a 14% increase in revenue compared to the previous year, with particularly strong growth in the commercial aerospace sector. Operating income and earnings per share also saw significant increases, while free cash flow remained strong. The company also made strategic moves to reduce interest costs and invest in future growth, particularly in the engines business.

In the third paragraph, Ken Giacobbe provides an overview of the company's performance in different markets and segments. He mentions that total revenue increased by 14%, with strong growth in commercial aerospace and defense aerospace. However, the commercial transportation market weakened. The company's financials were also strong, with record revenue, EBITDA, EBITDA margin, and earnings per share. The team also delivered record free cash flow and a strong balance sheet.

In the second quarter, the company used its healthy cash balance to repay remaining debt and opportunistically repurchase bonds, resulting in a reduction of annual interest expenses and improvement of free cash flow. The company also saw a record low net debt to EBITDA ratio and strong liquidity. $104 million was deployed to shareholders, including $60 million for common stock repurchases. The Engine Products segment had a record performance, with a 14% increase in revenue and a 31% increase in EBITDA. Demand remained strong across all engine markets, and the segment absorbed a net increase in employees to support future growth.

The Fastening Systems and Engineered Structures teams had a strong quarter, with both seeing significant increases in revenue and EBITDA. The Fastening Systems team saw a 20% increase in revenue, with commercial aerospace and commercial transportation leading the way. The Engineered Structures team also had a strong quarter, with a 38% increase in revenue driven by the wide-body recovery and the F-35 program. The Forged Wheels team faced challenges in a tough market, resulting in a decrease in revenue and EBITDA, but their EBITDA margin remained stable. Overall, the company expects continued improvements in all sectors throughout 2024.

John Plant discusses the strong demand for air travel and the robust growth in air traffic and freight volumes. However, sales for Howmet are currently constrained due to the ability of aircraft manufacturers to build and deliver aircraft. Boeing's inventory position and liquidation of inventory remains a concern, and the assumed 737 build rate has been updated to 22 aircraft per month in 2024.

The outlook for defense remains strong with a double-digit increase expected for the year. Howmet is well-positioned in the IGT market and is anticipating increased demand in the future. Oil and gas are also performing well with double-digit increases. However, there may be a slowdown in the commercial truck market and in Europe due to vacation seasonality. Capital expenditure for 2024 has been increased by $30 million due to additional customer contracts. More information will be provided in the next call.

The company has increased its free cash flow guide by $70 million despite additional capital expenditures and increased working capital. This will lead to further future revenue growth. The common stock dividend has also been increased by 60%, and share buyback authorization has been increased by $2 billion. The company has also increased its revenue and EBITDA guidance for the year, with expected increases in Q3 revenues, EBITDA, and earnings per share. Free cash flow is also expected to increase by $70 million from the previous guide.

The article discusses the increase in revenue, profit, and free cash flow for 2024, with a 12% growth rate year-over-year. The speaker is pleased with the second quarter results and the guide for the year has been raised on all fronts. They mention the potential opportunity to capture share due to a reported slowdown in engine deliveries at Airbus, which could result in increased demand for their company's products. The speaker also notes that this news is good for investors and provides more specific details on the situation.

The company has seen a significant increase in commercial aerospace revenues over the past three years, and this year's year-to-date increase of 25% is also higher than any aircraft production rates. This is due to a 40% increase in production of turbine blades and hot sections. However, the company is unsure of the outcome of subsequent processing and the demand for their products in the MRO market. Despite the potential for increased sales, the company has had to adjust their engine build assumptions in line with the engine manufacturers' rate reductions.

The speaker explains that the company is suffering due to a lack of engine build, which affects their ability to supply structural castings and parts for the low-pressure part of the turbine. They have excess labor in some of their French plants due to the demand for low-pressure turbines. They are increasing production and trying to satisfy all customers, but cannot provide further details. The speaker also mentions the company's investment in hot section technology and potential for increased market share. They are not seeing a reduction in newbuilds, but the situation is complex and not easily explainable.

The company is investing in increasing its capital expenditure to meet the demand for a second engine manufacturer. This will involve building out two plants and using automation and advanced technology to achieve consistent production yields. The focus is on elevating temperature performance and increasing pressure for more robust engines. These upgrades will be available in 2025 and will be provided to both LEAP and GTF engines. The company will also offer these new products to the service market.

John Plant, CEO of Howmet Aerospace, provided an example of the company's increased production volumes and mentioned that they have built tens of thousands of parts for new engine improvements, which are currently in inventory awaiting certification signoff. In response to a question about the trajectory of the 787 program, Plant stated that deliveries from Howmet have been in line with previous guidance, but they have taken into account the reduction in production from one of the European manufacturers. He also mentioned that they have adjusted their inventory levels for fasteners to align with the reduced production rate of Boeing's 787 program.

John Plant, CEO of Cummins, answers a question about the company's incremental margins from David Strauss of Barclays. He explains that the company's revised guidance for this year implies a 40% to 45% incremental margin, which takes into account seasonality and a reduction in their Wheels business in Europe and Class 8 trucks in the US. Plant also mentions the company's focus on productivity and efficiency, with a significant increase in revenue but minimal increase in employee headcount. He notes that the company has hired around 600 people in the first half of the year, with all of the growth in their Engine business.

The company is experiencing high demand and is preparing for increased capacity by hiring and training more employees. They are pleased with their efficiency and have seen a slight decrease in inflation. The only current headwind is the increase in price of aluminum, which will affect their Wheels business. The company expects a decrease in Wheels revenues and margin in the third quarter due to seasonality, demand, and the cost of aluminum. Overall, the company is seeing good stability and expects a 25% EBITDA margin in the second half. During a Q&A session, an analyst asked about pricing, to which the CEO responded that they have stopped specifying pricing but it is likely accelerating.

The speaker responds to a question about the production challenges faced by aircraft manufacturers Airbus and Boeing, as well as engine manufacturer GE. The speaker notes that Airbus has lowered their delivery expectations due to engine availability issues, while Boeing is showing signs of increased stability in their production plant. The speaker also mentions that there is less discussion about engine production rates, but expects an increase in the second half of the year for LEAP engines. This will help to ramp up current inventory and meet high production rates for the high-pressure turbine.

John Plant, CEO of the company, discussed the company's guidance on price and stated that there have been no changes from the previous guidance given. He mentioned that the company will not comment further on the topic. The next question was about the second engine win, and Plant shared that it is a good business deal with elevated depreciation charges due to the capital-intensive nature of engine manufacturing. He also mentioned the need for increased automation to meet the quality and yield requirements for these turbine products.

John Plant, CEO of a company, is discussing the margins and volume increase of their investments. He mentions that the margins are satisfactory and will result in a good return on capital, making investors happy. He also talks about taking additional market share and placing new machine tools, but does not want to publicly disclose specific customer market shares. He mentions that the demand for these tools is high and they are waiting for certification from regulatory agencies. The next question is about the volume increase, to which Plant responds that the share gain is healthy and in line with previous investments. He also mentions the importance of quickly placing and commissioning the new tools.

Scott Mikus, representing Rob Spingarn, asks John Plant about the long-term margin target for Howmet. Plant declines to give a specific target, stating that the aerospace industry is cyclical and it is difficult to predict future margins. He also mentions that he does not follow the trend of other companies in giving margin predictions, and prefers to focus on making improvements to the company instead. Noah Poponak then asks a question, but it is not mentioned in the summary.

John Plant, in response to a question about hiring and revenue growth, explains that the company's segments have evolved differently post-pandemic, with Engine seeing a 1,000 basis point increase and Fastening still below pre-pandemic levels due to lagged revenue recovery. He notes that the future mix will be different as the company produces different fasteners for composite and metallic-based aircrafts. He also mentions potential rate increases for the A350 and 787, but emphasizes the need to wait and see what happens in 2025 first.

John Plant, Ken and PT are pleased with the company's recent results, which have shown a sequential improvement in margin for the fastener business. They hope to increase production rates for the 787 and A350 in the coming years, which would be a positive factor for the company. However, they are not focused on returning to previous margin levels and are instead focused on continuing to improve sequentially. There are no major concerns about excess inventory or deferral requests in the channel. The Asheville RTX facility has not had a negative impact on the company's outlook for future programs.

John Plant, CEO of Arconic, discusses the status of the company's Asheville facility and the potential for excess inventory in the supply chain. He notes that there have been no major changes or updates from RTX regarding the facility and that they are still working through issues with the GTF engine. He also mentions that there may be some excess inventory in the supply chain due to a recent cutback on low-pressure turbine parts, but they are managing it through changes in employment and production at their facilities in France.

The speaker discusses the difficulties in accurately modeling the aviation industry due to various factors such as delivery rates, production levels, and engine manufacturers. They advise taking their guide as the best estimate and mention reductions in the Wheels business due to reduced market activity. They also mention adjusting for Boeing rates and taking engine production levels down to match what they have been advised. A question from Ron Epstein is mentioned, but it is not specified.

During a discussion about the shortage of castings in the industry, John Plant from Howmet explains that the shortage has negatively affected their structural and low-pressure turbine castings. He also mentions that their capacity is not easily transferable and that they are working to increase production of high-pressure turbine castings. However, the decision on where these castings go ultimately lies with the MRO shops and OE production.

The company is unable to increase production capacity in the short term due to high capital intensity and agreements with customers. They are working with customers to improve internal yields but do not have a quick solution to increase production. They are also considering relaxing certain requirements in order to improve yields without compromising product quality.

The speaker, Ronald Epstein, thanks John Plant for his response and the operator announces that the question and answer session is over. They thank everyone for participating and end the call.

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