The paragraph is the introduction to the Howmet Aerospace Fourth Quarter and Full Year 2024 Conference Call. The operator introduces the call, which is led by Paul Luther, VP of Investor Relations, with contributions from John Plant, Executive Chairman and CEO, and Ken Giacobbe, CFO. The discussion includes forward-looking statements and uses non-GAAP financial measures like adjusted EBITDA, operating income, and EPS. John Plant will comment on the fourth quarter, noting that the company achieved record revenues, EBITDA, EBITDA margin, and earnings per share, surpassing their guidance.

In the fourth quarter, Howmet reported earnings per share of $0.74, marking a 40% increase from the previous year and a total of $2.69 for the year, which is 46% more than the prior year and 25% above the initial 2024 guidance. The operating margin for the quarter was 23%, and the year's free cash flow reached a record $977 million, equating to an 88% conversion of net income. Howmet used the free cash flow for share repurchases, debt reduction, and dividends. In 2024, they repurchased $500 million in stock, reduced debt by $365 million, and paid $109 million in dividends, with dividends seeing a 25% increase. The company's net debt to EBITDA ratio improved to 1.4 times. Additionally, the structures segment showed a significant improvement in profitability. Revenue increased by 9% in Q4 and 12% for the year, driven by strong commercial aerospace growth, which saw a 13% increase in Q4 and 20% for the year. Ken Giacobbe noted the company's strong positioning and investment for future growth.

In the article paragraph, it is highlighted that Howmet experienced a 22% growth in defense aerospace for the year, primarily due to increased demand for fighter programs and engine spares. Despite a challenging commercial transportation market, Howmet's premium products outperformed, and the wheel segment achieved a 27.2% EBITDA margin. Industrial and other markets showed growth, notably with oil and gas up 22% in the fourth quarter. There was a 25% increase in spares revenue for the year, contributing 17% to total revenue, up from 11% in 2019. Overall, Howmet achieved record performance in revenue, EBITDA, EBITDA margin, and earnings per share, with a 12% revenue increase and a 27% rise in EBITDA, alongside strategic workforce adjustments to improve productivity. The full-year EBITDA margin increased by 310 basis points to 25.8%, with a fourth-quarter exit rate of 26.8%.

The paragraph discusses Howmet's strong financial performance and strategic financial management over the year. It highlights a significant improvement in key metrics, with a 50% incremental flow-through of revenue to EBITDA and a 46% increase in earnings per share, reaching $2.69. The company achieved a record free cash flow of $977 million, surpassing guidance, with an 88% conversion rate of net income. CapEx investments hit a record $321 million, and the cash balance ended at $565 million. Net debt to trailing EBITDA reached a record low of 1.4 times, and the company received upgrades in credit ratings from S&P and Moody's. Liquidity remains robust with $1 billion in undrawn revolver capacity and a commercial paper program. Howmet deployed $975 million towards stock repurchases, debt reduction, and dividends, with stock repurchases amounting to $500 million in the year and $50 million in January 2025. The board has authorized remaining share repurchases of approximately $2.15 billion. Debt was reduced by $365 million for the year.

The paragraph outlines the company's financial performance and strategic actions in the fourth quarter. They repaid $60 million of a term loan, reducing annual interest expenses by $37 million. Dividends increased 53% year over year, with a recent announcement of a 25% increase in quarterly dividends. The Engine Products segment saw a 14% revenue increase to $972 million, with strong growth across aerospace, oil and gas, and IGT markets, reaching record engine spares volume. EBITDA in this segment grew 30% year over year, achieving record figures. Additionally, they expanded their workforce by 1,205 employees. The Fastening Systems segment also performed well, with an 11% revenue increase to $401 million and a 39% increase in EBITDA, despite some declines in commercial transportation.

The article highlights strong financial performances across various sectors of a company. The fasteners team achieved a significant increase in EBITDA margin to 27.7% with a 17% revenue growth to $1.6 billion and a 46% rise in EBITDA to $406 million, despite reducing headcount by 135 employees. Engineered structures also saw improvements, with a 13% revenue increase to $75 million and a 55% rise in EBITDA to $51 million, driven by aerospace sectors, primarily the F-35 program. The full year's revenue for this segment rose by 21% to $1.1 billion as EBITDA increased by 47% to $166 million. Meanwhile, the forged wheels segment experienced a 12% revenue decline due to a slowdown in the commercial transportation market, but maintained a healthy EBITDA margin of 27.2% by flexing costs and improving commercial performance. Overall, the company achieved significant margin improvements while managing headcount reductions.

The paragraph discusses the financial and market performance of a company, highlighting improvements in operational tax rate and pretax return on net assets for 2024. It then shifts to John Plant's commentary on different market segments, particularly focusing on the commercial aerospace segment. It notes growth in air travel and freight, especially in Asia Pacific, leading to unprecedented backlogs for major aircraft manufacturers like Airbus, Boeing, and COMAC. The backlog increase is attributed to production disruptions at Boeing due to a strike. With suppliers maintaining part production, there's potential for ramped-up builds. Airbus is near its revised production target, COMAC has delivered C919 aircraft to Chinese airlines, and Boeing is expected to average 25 monthly builds of the 737 MAX, with production increasing in the latter half of the year.

The paragraph discusses Howmet's financial outlook and future projections. It highlights the potential for adjustments based on Boeing's production rates, and reports a 25% increase in spares revenue, expecting it to reach 20% of Howmet's revenue by 2025. The defense sector, particularly the F-35 program, is noted for its continued strength, with spares expected to surpass original engine revenues by 2025 or early 2026. Industrial growth is anticipated, driven by demand from IGT oil and gas, with an emphasis on fossil fuels over renewables under the new US administration. This shift is expected to increase turbine spare parts demand and new turbine builds globally, driving increased CAPEX investment in 2025. Howmet remains committed to expanding its capacity for global industry leaders like Siemens, Mitsubishi Heavy, and GE Vernova.

The article highlights optimism for Howmet's growth, particularly in the IGT sector and its position in future OE builds and spares growth. While commercial truck demand remains muted, Howmet managed to increase its wheel margins despite a Q3 and Q4 downturn, achieving a 27.2% EBITDA margin. The outlook sees a demand increase in 2025, mainly due to Boeing builds and potential growth in the second half. Revenue guidance has increased slightly, with strong figures expected for the first quarter of 2025 and the full year. Incrementals are healthy, and free cash flow is projected to be over a billion. The company is monitoring tariff impacts and plans to offset additional costs through customer agreements, leveraging the critical nature of its products.

The paragraph discusses Howmet's financial performance and projections. It highlights their strong balance sheet, investment-grade rating, and net leverage ratio of 1.4 times net debt to EBITDA. For 2025, they expect strong performance with a back-end load, a 25% increase in dividend payout, and continuation of the share buyback program, which is expected to surpass 2024 levels. Debt repayment will be less aggressive compared to 2024, offering good shareholder returns and financial flexibility. During the Q&A, Doug Harned from Bernstein asks about the high EBITDA margins of about 28% in the fastening systems segment, noting a mix improvement with more A350 and 787 fasteners, and inquires if this indicates a trend towards higher margins through mix performance or operating leverage improvements.

In the paragraph, John Plant discusses the positive trajectory of their fastener business, highlighting operational and productivity improvements as well as commercial discipline that have helped restore margins. He notes that while the wide body aircraft market hasn't fundamentally improved yet, there is a slight positive shift relative to narrow body aircraft in 2024. Plant expects better builds in 2025 and mentions future production increases for Boeing 787 and Airbus, which should benefit their business. However, he also anticipates a slower rate of margin increase in the future. Following this, Doug Harned moves on to a question from Myles Walton, who seeks clarification on the company's implied guidance after the first quarter, noting expected margin decreases and lower incremental gains, and asks if this is due to conservatism or other factors affecting growth and headwinds.

John Plant discusses the company's cautious financial outlook for 2025 due to uncertainties in the market, such as changes in narrow body aircraft production and potential supply chain challenges in wide body aircraft components. Despite being conservative, the company is preparing by building new manufacturing plants and acknowledges uncertainties in inventory management at Boeing. Plant highlights the need for caution given the lack of visibility into the future, although he expects improvements in the commercial truck sector in the year's second half. The company aims to provide the best visibility available while remaining prudent given these challenges.

In the article paragraph, John Plant discusses the company's cautious approach to matching demand and expanding infrastructure while emphasizing the need for improved visibility on market and customer demands. Myles Walton inquires about headcount growth, to which John responds that they're expecting to add approximately a thousand net positions for the year, though this number isn't finalized. Robert Stallard asks about the 737 production forecast, and John explains that while the fourth quarter requirements for Boeing weren't strong, they have adjusted their first-quarter guidance accordingly. He expresses concern about potential demand fluctuations that could lead to instability as they approach 2026.

In the paragraph, John Plant discusses the company's recent improvements and strategies during a question-and-answer segment. He mentions that the company's current performance is stable and fully accounted for in the first quarter projections, with no concerns. The focus on turbine airfoils for the LEAP-1B will continue with existing products until 2025, as changes are planned for later compared to the LEAP-1A. Additionally, in response to Scott Deuschle's question, John elaborates on the benefits of product rationalization, citing the closure of some European facilities and the sale of a less profitable business, which contributed to an improved EBITDA margin. He highlights the importance of increased productivity and commercial focus, resulting in a margin increase from 14% to 18%, with plans to build on these improvements in 2025.

The paragraph discusses the timing and approval of engine changeovers for the GTF and LEAP engines. The GTF engine, awaiting final approval from Pratt & Whitney, is expected to transition around mid-2025, with benefits for durability and Howmet’s business. The LEAP-1A changeover has occurred, improving their fourth-quarter engine margin and benefiting both GE and Howmet. However, the LEAP-1B is not expected to change over until mid-2026, pending approvals from GE, Boeing, and the FAA. Overall, the timing for these transitions remains uncertain but is anticipated to be beneficial.

The paragraph discusses the potential growth and opportunity in industrial gas turbines (IGTs), particularly driven by the increasing demand for electricity from data centers in the U.S. These data centers require significant electricity for operation and cooling, leading to greater reliance on gas turbines for on-site power generation due to their security needs. The shift in how electricity is provided, influenced by the new administration, increases the importance of IGTs alongside renewable sources like wind and solar power.

The paragraph discusses optimistic prospects for the natural gas and industrial gas turbine markets, with plans to expand facilities and increase capacity by 2025-2027. The expansion is expected to benefit from collaborations with major companies like Microsoft, Meta, Google, and Oracle. In the short term, existing turbines will need to be run harder, increasing demand for spare parts and turbine blades, a market where Howmet holds over 50% share. Despite constraints in supply in the coming years, there is a positive outlook for future sales revenue and margins, which are expected to be similar to those in the aerospace turbine sector.

In this discussion, John Plant and Ken address questions from David Strauss about their company's financial strategy. John explains that over the years 2022 to 2024, cash flow has been directed to shareholders through share buybacks and dividends, as well as through debt reduction to improve future cash flow. Although they don't plan significant debt restructuring in 2025, they aim to continue prioritizing shareholder returns, primarily through increased share buybacks. Specific figures for 2025 have not been provided, but the focus will remain on repatriating cash flow to shareholders due to the company's strong financial position.

In the paragraph, Ken Giacobbe discusses the company's free cash flow performance, highlighting a record $977 million in 2024 with an 88% conversion rate, despite a substantial $321 million investment in capital expenditures, particularly in the engines business. Looking ahead to 2025, the company anticipates generating over a billion dollars in free cash flow, with a working capital burn of approximately $180 million. This increase in working capital is partly due to a $600 million revenue growth expectation, typically resulting in a 20% working capital burn. The company plans to build more inventory, particularly for commercial aerospace narrow-body models, to be prepared if production rates increase. The conversation ends with Sheila Kahyaoglu from Jefferies asking about the decline in engine margins in Q4.

In the paragraph, John Plant addresses concerns about a small margin change in the engine segment in the fourth quarter, which he dismisses as insignificant "noise." He attributes the change to costs incurred during the transition to the new LEAP-1A stage one turbine blade, emphasizing that this changeover is now complete and the new blade is performing well. He anticipates that these costs won't recur in 2025, as the LEAP-1B will be relevant in 2026. He also mentions upcoming changes for the GTF engines, seeing them as positive due to the considerable technology advancements. Overall, Plant suggests that the fourth-quarter margin fluctuation is typical and not a long-term concern for the business.

The paragraph involves a discussion about the Structures business and its performance. A speaker, likely a company executive such as John Plant, expresses optimism about the improvements and changes made to the Structures business in 2024, particularly highlighting positive outcomes in the fourth quarter. The speaker anticipates a significant year-on-year percentage improvement in the business's performance from 2024 to 2025, specifically expecting margin performance to move into the high teens. There's also a hopeful outlook that no adverse events will reverse these gains. Despite exiting certain areas and not seeking to add new capital, the speaker believes that the current performance can be sustained into 2025. The discussion takes place during a conference call or similar setting, with the dialogue involving input from Sheila Kahyaoglu and Seth Seifman, who are likely analysts.

The paragraph discusses the reinvestment strategy in a business that was previously underfunded due to its position in the portfolio and margin performance. It highlights that the inventory issues at Lockheed have been resolved, and demand for titanium remains strong through 2025. The business is currently achieving high margins, and there is potential for growth, although it may not reach the margins seen in the engine business. The speaker expresses optimism about the business's future, mentioning its growth potential and technological developments. Overall, the business is a valuable contributor to the portfolio.

John Plant addresses the demand for CFM56 and LEAP engines. For CFM56, he mentions that peak demand, initially expected in 2025, is now projected around 2027 due to increased usage of existing fleets and continued demand for maintenance and overhauls. He anticipates only slight reductions in demand beyond 2027, extending into the next decade. Regarding the LEAP engines, Plant expects growing spares demand, particularly for the LEAP-1B engines, with a strong demand for LEAP-1A blades as well. He also notes that the introduction of new LEAP engines was lower than expected, which has further increased the demand for CFM56 engines. Overall, Plant highlights a robust spares growth outlook for the aerospace sector.

The paragraph discusses the dynamics of engine production and spare parts demand leading up to 2025, emphasizing the priority given to spares over original equipment (OE) engines. The speaker expects that the needs of Boeing and Airbus will be met, with LEAP-1B engines produced for them while spares are prioritized. The demand for spares is expected to significantly increase in 2025, leading to a healthy growth in both spares and OE engine builds. The importance of every engine component, particularly for enabling the production goals of Airbus and Boeing, is highlighted. The session concludes with Ken Herbert thanking the participants.

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