The paragraph is the introduction to the Howmet Aerospace third-quarter 2024 earnings call. The operator provides instructions for participants, noting that the call is recorded and there will be a Q&A session after the presentation. Paul Luther, Vice President of Investor Relations and FP&A, welcomes participants and introduces key executives John Plant and Ken Giacobbe, who will speak and then take questions. Luther also mentions that the discussion will contain forward-looking statements and highlights that financial measures will be non-GAAP. John Plant then notes that the third quarter was strong for Howmet Aerospace, with an 11% year-over-year revenue growth.

The paragraph provides a financial update on Howmet's recent performance. It highlights a 17% growth in commercial aerospace, a record EBITDA of $487 million with a margin of 26.5%, and operating income of $419 million, which was up 33% year-over-year. Engine spares and fasteners showed strong performance, while wheels revenue declined, especially in Europe. Earnings per share increased by 54% to $0.71, with strong free cash flow of $162 million. After investments in debt reduction, share buybacks, and dividends, the cash balance stood at $475 million. Restrictions on aerospace parts to Boeing impacted revenue, but the resolution of a Boeing strike is expected to normalize business. The wheels business saw an 18% revenue decline due to weak European markets. The paragraph concludes with a transition to Ken Giacobbe for further details.

In the third quarter, the company experienced strong market growth, with an 11% increase in total revenue compared to the previous year. This was supported by significant growth in commercial aerospace (up 17%) and defense aerospace (up 15%), despite supply restrictions to Boeing. The industrial sector also grew by 17%, driven by the oil and gas and IGT sectors, although commercial transportation revenue declined by 12%. The company achieved record-breaking financial results, with EBITDA increasing by 27%, an EBITDA margin of 26.5%, and earnings per share rising by 54% to $0.71. The balance sheet strengthened, with $475 million in cash, record free cash flow of $162 million for Q3, and year-to-date free cash flow of $600 million. Net debt to EBITDA improved to a record low of 1.6 times, with all long-term debt unsecured and fixed-rate.

The paragraph outlines Howmet's financial improvements and strategic actions in recent quarters. Moody's upgraded its credit rating due to better financial leverage and cash generation, and Fitch has given a positive outlook. The company maintains strong liquidity with a substantial cash balance and available credit facilities. In terms of capital deployment, Howmet used $416 million in the quarter to pay down debt, repurchase stock, and pay dividends. Debt was reduced by $282 million through actions like redeeming 2024 and 2025 bonds and issuing new ones at a lower interest rate, reducing annual interest expenses by $33 million. Howmet's next debt maturity is in 2026. The company has consistently repurchased stock, buying back $100 million in Q3 and $400 million year-to-date by the end of October 2024, which has lowered the share count and improved the average share price.

In the third quarter, the company reported strong financial performance across its divisions. The Board of Directors has authorized approximately $2.3 billion for share repurchases, and the company expressed confidence in its free cash flow, distributing $34 million in dividends after increasing the dividend per share by 60%. Engine Products achieved record revenue and EBITDA, with a year-over-year revenue increase of 18% and EBITDA growth of 40%, driven by strong engine spares demand. Fastening Systems also reported robust results with a 13% increase in revenue and a 34% rise in EBITDA. The segment's EBITDA margin improved significantly, and Engineered Structures showed continuing improvement.

The paragraph discusses the financial performance of a company, highlighting an 11% year-over-year revenue increase to $253 million, with commercial aerospace and defense aerospace segments up 11% and 27%, respectively. Segment EBITDA grew by 27%, reaching $38 million, and the EBITDA margin rose by 180 basis points to 15%. Despite a sequential revenue decrease of 8% as the company optimizes its manufacturing and product mix, improvements are anticipated for 2025. Forged Wheels revenue declined by 14% year-over-year due to a slowdown in commercial transportation, with EBITDA down 17%, but the margin remained healthy at 26.1%. A special $44 million R&D tax credit from a study on prior period expenses, approved by the IRS, reflects the company's investment in innovation. Looking forward, air travel demand remains strong, with consistent growth, especially in the Asia-Pacific region.

The paragraph provides an optimistic outlook for aircraft production and related products, driven by strong demand for spares and backlog orders, with expected growth in commercial aerospace and defense sectors. It anticipates a 12% growth in commercial aerospace and about 7.5% revenue growth for the company in 2025. The defense sector is also expected to grow at mid-single digits. Growth in industrial gas turbines (IGT), oil, and gas is expected at mid-single digits or slightly higher, while commercial truck wheels face a muted outlook initially. However, a potential pickup in demand may occur in the latter half of 2025 due to pre-buying in response to upcoming environmental regulations. The paragraph also highlights future energy demand driven by AI, data centers, and cryptocurrency mining, which positively impacts the company's prospects.

The paragraph discusses the increasing demand for data center capacity and power generation due to AI and cloud computing growth. AI computing capacity has significantly risen, and data center power consumption is expected to reach 50 gigawatts by 2030. Major companies like Meta, Microsoft, Amazon, Google, and Oracle are driving this demand. Data center construction is projected to cost $600 billion by 2028, with a reliable power supply being crucial, likely from nuclear and gas-generated sources. Companies like Duke, AEP, and Dominion plan increased gas generation. Howmet, a leading turbine blade supplier, is poised to benefit from this global trend starting in 2026. In addition, commercial aerospace production is expected to grow, especially for Boeing and Airbus, following a period of tempered expectations due to supply chain issues and inventory adjustments.

The paragraph discusses expectations for commercial aerospace growth, projected at around 12%, with overall growth anticipated to be approximately 7.5%, varying by 1%, and stronger growth in the latter half of the year. The company plans to update its revenue outlook through 2025 as it gains more insight into Boeing's production. For Q4, any potential weakness from Boeing and commercial truck wheels is expected to be balanced by increased sales of engine spares. The company provides specific financial guidance for Q4 and the full year, including revenue, EBITDA, earnings per share, and free cash flow. It also announces plans to raise the common stock dividend by 25% in 2025, subject to board approval. The paragraph concludes with a comment on maintaining a stable net headcount for Q3, followed by the transition to a Q&A session. Sheila Kahyaoglu from Jefferies asks a question about commercial build rates in 2025, referencing the given guidance and expectations for Q4.

In the paragraph, John Plant discusses the uncertainty around Boeing's aircraft production rates for the remainder of the current year and into 2025. He mentions that external forecasting agencies predict a substantial increase in production for 2025, but he finds a 30% increase unrealistic given the present conditions. Instead, he thinks a 12% year-on-year increase is more achievable. Plant acknowledges challenges in the aircraft and engine build sectors in 2024 but remains cautiously optimistic about improvements. He plans to provide more detailed forecasts in February. Sheila Kahyaoglu thanks him, and the dialogue shifts to Robert Stallard, who asks about expectations for aerospace aftermarket revenues in 2025.

In the paragraph, John Plant discusses the company's strategic positioning and its increasing focus on aftermarket spares revenue. He highlights that spares revenue has grown from 11% of total revenues in 2019 to an expected 17% in 2024, despite an overall revenue growth to $7.5 billion. Plant anticipates that this aftermarket revenue share will exceed 20% in the next few years, leading to reduced volatility and benefiting shareholders. This shift implies a more stable revenue stream due to reduced dependency on OEM production rates.

The paragraph discusses Howmet's production amid supply chain constraints, particularly focusing on engine spares and turbine blades. It states that output for LEAP engines and turbine blades has increased by 40% and 50% respectively from 2023. Howmet does not specify the end market for their castings. A joint meeting was held with Airbus and other parties to review production data, showing significant output increases. The company awaits FAA and EASA approvals for a new engine blade type, having produced 500 sets already. Howmet's production and strategic positioning are seen as robust, providing a positive outlook despite current constraints.

The paragraph features a discussion led by John Plant about the company's efforts to increase engine and spares production, particularly focusing on LEAP and GTF Advantage engines. John highlights the anticipated robust growth in both engine production and spares requirements, pointing out that this will help reduce revenue volatility and increase aftermarket content. The company's strategic aim is to capitalize on increased aircraft and engine production by selling related components, such as structural castings, turbine parts, and fan blades. Doug Harned then asks John to elaborate on the production capacity strategy for airfoil blades for LEAP engines, inquiring about current capacity, automation, and potential investment needs.

John Plant discusses the company's increased investment in the engine business due to robust demand for engine and aircraft production and a growing need for spares. The demand for spares is driven by modern engines' higher operating temperatures and pressures, which lead to more frequent shop visits. The company has engaged in detailed discussions with customers to understand future demand patterns over the next five years and is preparing to expand production capacity accordingly. This includes catering to both original equipment (OE) production for narrow-body and wide-body aircraft and the rising demand for spares. Plant anticipates a consistent increase in spares demand in the coming years, although the growth rate may vary annually.

In the paragraph, John Plant discusses the factors contributing to the recent increase in incremental margins in the fourth quarter. He emphasizes that predicting margins for the next year is challenging due to the unpredictability of factors such as top-line growth and operational efficiency. Plant notes that while they expect to benefit from increased volume leverage, they will also have to deal with the challenges of training new employees to meet future production demands. He mentions recent productivity gains and the recruitment of approximately 1,000 new employees over the past two quarters as contributing factors to the current situation.

The paragraph discusses the company's engine business growth in Q3 and plans for net-zero emissions. The company anticipates an increase in hiring by 2025 to ensure a well-trained workforce for when production begins, allowing them to maintain quality and delivery performance. Despite a 7.5% volume increase outlook, there are no margin comments for next year. By 2026, there is an expected demand increase for both original equipment (OE) production in commercial aerospace and spare parts. David Strauss from Barclays questions John Plant about future aero revenue growth, specifically if it will accelerate in 2026 due to market share gains, with Plant considering aircraft production trajectory.

The paragraph discusses anticipated improvements in the supply chain constraints affecting the aerospace industry, particularly for Airbus and Boeing, by 2025. It highlights the demand for new aircraft due to factors like fuel efficiency and emissions reduction, with airlines maintaining older aircraft longer than desired due to production issues. By 2026, the outlook is optimistic for improved aircraft production and fulfillment of backlogs. Additionally, there is expected to be a growing demand for electric systems and military aircraft, such as the F-35 and older models like the F-15 and F-16, reflecting overall positive industry prospects.

The paragraph discusses the growth prospects in the defense sector, particularly related to the F-35 aircraft production and spares demand. John Plant mentions that despite Lockheed's production goal of 152 aircraft annually, actual deliveries have been lower due to software issues, but he expects higher deliveries in the future. He anticipates only modest production growth, from 152 to 156 aircraft, which translates to a 2% to 3% increase. However, he is optimistic about increased demand for engine spares due to the expanding aircraft fleet, which has surpassed 1,000 globally and is expected to grow significantly in Europe by the end of the decade.

The paragraph discusses inventory and production challenges in the aerospace industry. It mentions excess inventory at customers due to anticipated builds that didn't happen and hopes for its clearance by 2024, with some possibility of extending into 2025. There's potential for improved optimism if Boeing increases its legacy fighter production, hindered by labor issues. In terms of financials, $1.25 billion in spares is roughly split between commercial and defense/IGT sectors. While commercial growth has been higher recently, defense and other sectors have seen higher absolute levels due to fewer COVID disruptions. Currently, the non-commercial aerospace side is larger, but commercial aerospace is growing faster, with an estimated value of approximately $550 million this year.

The paragraph is part of a discussion between Seth Seifman and John Plant regarding spares demand in the aerospace industry. Seifman asks about the impact of older planes staying in service longer on aftermarket demand, suggesting that newer engines might drive current demand. John Plant responds by breaking down the question, explaining that shop visits for legacy engines like the V2500 and CFM56 have not yet peaked, partly due to fewer retirements. He indicates that the expected peak demand for these engines, initially anticipated for 2025, is now likely to be pushed to 2026, 2027, or beyond. Plant also notes that there won't be a significant drop after this peak, but a gradual decline, while acknowledging that newer engines are also contributing to the spares demand.

The paragraph discusses issues with the time on wing for GTF and LEAP engines, which have led to earlier-than-expected shop visits. Despite improvements in reliability, there is ongoing high demand due to these visit cycles. Legacy engines are expected to continue to peak. The conversation then shifts to capital deployment and potential mergers and acquisitions (M&A). The company is in a position to explore acquisitions, particularly those involving companies previously owned by private equity, and there might be fewer regulatory hurdles for deals moving forward due to changes in administration and election outcomes.

The paragraph features a discussion about potential strategic moves for a company, focusing on cautious consideration of acquisitions versus stock buybacks. The speaker emphasizes the importance of disciplined financial decisions, comparing potential mergers and acquisitions to the benefits of buying back their own stock, which they find favorable. Despite nothing imminent in terms of acquisitions, the company remains open to opportunities while prioritizing shareholder returns. Additionally, Gautam Khanna inquires about the company's high-pressure turbine blade project, questioning its pricing and manufacturability, to which further discussion would follow.

John Plant discusses the transition to a new turbine blade configuration for the LEAP-1A engine variant. He clarifies that this new configuration will apply to both original equipment (OE) production and spare parts. Plant expresses optimism about the producibility of the new blades, noting that several hundred engine sets have already been manufactured alongside increased production of the existing blade type. Although it is still early to gauge long-term production yields, there are no current concerns. Plant anticipates a near-term transition to the new blade type, with the switch for the LEAP-1B variant for Boeing expected in several quarters, pending FAA and EASA approval. The conference call concludes with no further questions.

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