Howmet Aerospace Reports Fourth Quarter and Full Year 2022 Results

Full Year 2022 Commercial Aerospace Revenue Up 28% year over year, Strong Profit and Cash Generation

Full Year 2022 $400 Million Share Repurchases, Doubled Common Stock Dividend in Fourth Quarter 2022

Full Year 2022 $69 Million Debt Repurchases, Additional $26 Million Repurchased in January 2023

Full Year 2023 Revenue Growth Guidance Approximately 8%

Howmet Aerospace (NYSE:HWM):

Fourth Quarter 2022 Highlights

• Revenue of $1.5 billion, up 18% year over year, driven by Commercial Aerospace, up 29% year over year
• Net income of $111 million, or $0.26 per share, versus $77 million, or $0.18 per share, in the fourth quarter 2021
• Net income excluding special items of $160 million, or $0.38 per share, versus $130 million, or $0.30 per share, in the fourth quarter 2021
• Adjusted EBITDA excluding special items of $336 million, up 14% year over year
• Generated $455 million cash from operations; $410 million of free cash flow; $89 million of cash used for financing activities; and $29 million of cash used for investing activities
• Cash balance at end of quarter of $792 million; $65 million of common stock repurchases; $0.04 per share dividend on common stock; $9 million of debt repurchases

Full Year 2022 Highlights

• Revenue of $5.7 billion, up 14% year over year, driven by Commercial Aerospace, up 28% year over year
• Net income of $469 million, or $1.11 per share, versus $258 million, or $0.59 per share, in the full year 2021
• Net income excluding special items of $593 million, or $1.40 per share, versus $442 million, or $1.01 per share, in the full year 2021
• Adjusted EBITDA excluding special items of $1.3 billion, up 12% year over year
• Generated $733 million cash from operations; $193 million in capital expenditures, less than depreciation & amortization of $265 million; $540 million of free cash flow; $526 million of cash used for financing activities; and $135 million of cash used for investing activities
• $400 million of common stock repurchases; $44 million in dividends; $69 million of debt repurchases

2023 Guidance¹

* Excluding Special Items

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¹ Reconciliations of the forward-looking non-GAAP measures to the most directly comparable GAAP measures, as well as the directly comparable GAAP measures, are not available without unreasonable efforts due to the variability and complexity of the charges and other components excluded from the non-GAAP measures – for further detail, see “2023 Guidance” below.

Key Announcements

• In the fourth quarter 2022, Howmet Aerospace repurchased approximately 1.7 million shares of its common stock for $65 million, bringing full year 2022 share repurchases to approximately 11.4 million shares for $400 million at an average price per share of $35.22; approximately $947 million remains authorized for share repurchase.
• In the fourth quarter 2022, the Company repurchased approximately $9 million of the aggregate principal amount of its 5.125% Notes due 2024 (“2024 Notes”), bringing full year 2022 debt repurchases to approximately $69 million with cash on hand. Debt actions taken over the course of full year 2022 reduces annualized interest expense by approximately $4 million.
• In January 2023, the Company repurchased an additional $26 million of the aggregate principal amount of its 2024 Notes with cash on hand.
• The Company increased the quarterly dividend of its common stock from $0.02 per share to $0.04 per share in the fourth quarter 2022.

Howmet Aerospace (NYSE:HWM) today reported fourth quarter 2022 and full year 2022 results. The Company reported fourth quarter 2022 revenues of $1.5 billion, up 18% year over year, primarily driven by growth in the commercial aerospace market of 29%.

Howmet Aerospace reported net income of $111 million, or $0.26 per share, in the fourth quarter 2022 versus net income of $77 million, or $0.18 per share, in the fourth quarter 2021. Net income excluding special items was $160 million, or $0.38 per share, in the fourth quarter 2022, versus $130 million, or $0.30 per share, in the fourth quarter 2021. Net income included an approximately $50 million charge from special items, primarily non-cash and principally related to pension liabilities, in the fourth quarter 2022. Operating income margin was up approximately 310 basis points year over year at 14.5% in the fourth quarter 2022.

Fourth quarter 2022 Adjusted EBITDA excluding special items was $336 million, up 14% year over year. The year-over-year increase was driven by volume growth in the commercial aerospace market. Adjusted EBITDA margin, excluding special items, was down approximately 80 basis points year over year at 22.2% while passing through approximately $55 million of additional material costs year over year. Excluding material cost pass through, adjusted EBITDA margin excluding special items was 23.0%.

Full year 2022 revenues were $5.7 billion, up 14% year over year, primarily driven by growth in the commercial aerospace market of 28%. Net income of $469 million, or $1.11 per share, in the full year 2022 was up versus net income of $258 million, or $0.59 per share, in the full year 2021. Net income excluding special items was $593 million, or $1.40 per share, in the full year 2022, versus $442 million, or $1.01 per share, in the full year 2021. Operating income margin was up approximately 120 basis points year over year at 16.2% in the full year 2022.

Full year 2022 Adjusted EBITDA excluding special items was $1.3 billion, up 12% year over year. The year-over-year increase was driven by volume growth in the commercial aerospace market. Adjusted EBITDA margin, excluding special items, was down approximately 30 basis points year over year at 22.5% while passing through approximately $225 million of additional material costs year over year. Excluding material cost pass through, adjusted EBITDA margin excluding special items was 23.5% and year-over-year flow through of incremental revenue to Adjusted EBITDA excluding special items was strong at approximately 30%.

Howmet Aerospace Executive Chairman and Chief Executive Officer John Plant said, “Howmet Aerospace delivered a solid finish to 2022. The team drove strong revenue growth and improved profitability in 2022 against a choppy backcloth with uneven aircraft and engine build rate increases and inflationary pressures. The fourth quarter 2022 marks the sixth consecutive quarter of year-over-year revenue, Adjusted EBITDA², and Adjusted Earnings Per Share² growth. Fourth quarter 2022 Adjusted EBITDA margin² was a healthy 22.2%, while Adjusted Earnings Per Share² matched the midpoint of guidance and grew 27% year over year.”

Mr. Plant continued, “Turning to full year 2023, currently, air travel conditions are very favorable, and airlines are experiencing strong growth, demanding new, more fuel-efficient aircraft. While industry demand is expected to be robust, Howmet Aerospace relies on aircraft and engine builds by the major OEMs, and the Company is taking a conservative view of 2023 until we see consistent build rate increases. Underpinning full year 2023 guidance are assumed monthly build rates of approximately 30 for the Boeing 737-MAX and 53 to 54 for the Airbus A320 family, and approximately 30 Boeing 787 builds and 65 to 70 Airbus A350 builds for the year.”

“Cash generation in full year 2022 was strong, supporting $400 million in common stock repurchases, $44 million in dividends paid, and $69 million in debt repurchases. Howmet Aerospace ended the year with $792 million in cash, and total debt less cash in the fourth quarter was a record low since Separation. The Company’s balance sheet has never been stronger, and continued healthy free cash flow generation supports additional capital allocation actions.”

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² Excluding Special Items

Fourth Quarter 2022 Segment Performance

Engine Products

Engine Products reported revenue of $732 million, an increase of 21% year over year, due to growth in the commercial aerospace, defense aerospace and oil and gas markets, and an increase in material cost pass through. Segment Adjusted EBITDA was $191 million, up 26% year over year, driven by commercial aerospace, defense aerospace, and oil and gas volumes, as well as strong productivity gains. The segment added approximately 950 net headcount since the fourth quarter 2021 in anticipation of future revenue increases. Segment Adjusted EBITDA margin increased approximately 110 basis points year over year to 26.1%.

Fastening Systems

Fastening Systems reported revenue of $285 million, an increase of 11% year over year due to growth in the commercial aerospace market with narrow body recovery as well as an increase in material cost pass through. Segment Adjusted EBITDA was $58 million, down 3% year over year, driven by lower labor productivity of new hires. The segment added approximately 400 net headcount since the fourth quarter 2021 in anticipation of future revenue increases. Segment Adjusted EBITDA margin decreased approximately 300 basis points year over year to 20.4%.

Engineered Structures

Engineered Structures reported revenue of $230 million, an increase of 21% year over year due to growth in the narrow body commercial aerospace market, commercial aerospace share gain, and an increase in material cost pass through, partially offset by Boeing 787 production declines. Segment Adjusted EBITDA was $34 million, up 10% year over year, driven by favorable volume in the narrow body commercial aerospace market more than offsetting Boeing 787 production declines. Segment Adjusted EBITDA margin decreased approximately 150 basis points year over year to 14.8%.

Forged Wheels

Forged Wheels reported revenue of $266 million, an increase of 14% year over year due to higher aluminum material and other inflationary cost pass through and a 3% increase in volume, offset by unfavorable foreign currency movements. Segment Adjusted EBITDA was $72 million, flat year over year, driven by unfavorable foreign currency movements partially offset by favorable volume. Segment Adjusted EBITDA margin decreased approximately 370 basis points year over year to 27.1% including the impact of higher aluminum material costs, which are passed through to customers. Higher aluminum prices unfavorably impacted year-over-year Adjusted EBITDA margin in the fourth quarter 2022 by approximately 300 basis points.

Full Year 2022 Segment Performance

Segment performance in 2022 included the following:

• Engine Products revenue of $2.7 billion, up 18% year over year; segment Adjusted EBITDA was $729 million, up $165 million year over year; segment Adjusted EBITDA margin was 27.0%, up 230 basis points year over year.
• Fastening Systems revenue of $1.1 billion, up 7% year over year; segment Adjusted EBITDA was $234 million, down $5 million year over year; segment Adjusted EBITDA margin was 20.9%, down 200 basis points year over year.
• Engineered Structures revenue of $790 million, up 9% year over year; segment Adjusted EBITDA was $111 million, up $8 million year over year; segment Adjusted EBITDA margin was 14.1%, down 10 basis points year over year.
• Forged Wheels revenue of $1.1 billion, up 15% year over year; segment Adjusted EBITDA was $278 million, down $16 million year over year; segment Adjusted EBITDA margin was 26.3%, down 560 basis points year over year. Higher aluminum prices unfavorably impacted year over year Adjusted EBITDA margin in the full year 2022 by approximately 350 basis points.

Repurchased Approximately 1.7 Million Shares in Fourth Quarter 2022, 11.4 Million Shares in Full Year 2022

In the fourth quarter 2022, Howmet Aerospace repurchased approximately 1.7 million shares of its common stock for $65 million, bringing full year 2022 share repurchases to approximately 11.4 million shares for $400 million at an average price per share of $35.22. As of February 1, 2023, total share repurchase authorization available was approximately $947 million.

Repurchased Approximately $9 Million of Debt in Fourth Quarter 2022, $69 Million of Debt in Full Year 2022

In the fourth quarter 2022, the Company repurchased approximately $9 million of the aggregate principal amount of its 5.125% Notes due 2024, bringing full year 2022 debt repurchases to approximately $69 million with cash on hand. Debt actions taken over the course of full year 2022 reduces annualized interest expense by approximately $4 million.

Repurchased Approximately $26 Million of Debt in January 2023

In January 2023, the Company repurchased an additional $26 million of the aggregate principal amount of its 2024 Notes with cash on hand.

Howmet Aerospace Increased Common Stock Dividend in the Fourth Quarter 2022

The Company increased the quarterly dividend of its common stock from $0.02 per share to $0.04 per share in the fourth quarter 2022.

2023 Guidance

Full Year 2023 Guidance assumes the following aircraft build rates:

• Boeing 737-MAX: approximately 30 builds per month on average
• Airbus A320 family: approximately 53-54 builds per month on average
• Boeing 787: approximately 30 builds for the year
• Airbus A350: approximately 65-70 builds for the year

Howmet Aerospace expects higher Adjusted EBITDA excluding special items to drive growth in Adjusted Earnings per Share excluding special items in full year 2023. The Company expects the impact of higher non-cash pension expense to be offset by capital allocation actions. Capital allocation to common stock and/or debt repurchases depends on market conditions, profitability, and cash generation, among other factors.

Howmet Aerospace will hold its quarterly conference call at 10:00 AM Eastern Time on Tuesday, February 14, 2023. The call will be webcast via www.howmet.com. The press release and presentation materials will be available at approximately 7:00 AM ET on February 14, via the “Investors” section of the Howmet Aerospace website. A link to the press release will also be available via Howmet Aerospace’s Twitter handle @HowmetAerospace at https://twitter.com/howmetaerospace.

About Howmet Aerospace

Howmet Aerospace Inc., headquartered in Pittsburgh, Pennsylvania, is a leading global provider of advanced engineered solutions for the aerospace and transportation industries. The Company’s primary businesses focus on jet engine components, aerospace fastening systems, and airframe structural components necessary for mission-critical performance and efficiency in aerospace and defense applications, as well as forged aluminum wheels for commercial transportation. With nearly 1,150 granted and pending patents, the Company’s differentiated technologies enable lighter, more fuel-efficient aircraft and commercial trucks to operate with a lower carbon footprint. For more information, visit www.howmet.com. Follow: LinkedIn, Twitter, Instagram, Facebook, and YouTube.

Dissemination of Company Information

Howmet Aerospace intends to make future announcements regarding Company developments and financial performance through its website at www.howmet.com.

Forward-Looking Statements

This release contains statements that relate to future events and expectations and as such constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include those containing such words as "anticipates," "believes," "could," "estimates," "expects," "forecasts," "goal," "guidance," "intends," "may," "outlook," "plans," "projects," "seeks," "sees," "should," "targets," "will," "would," or other words of similar meaning. All statements that reflect Howmet Aerospace’s expectations, assumptions or projections about the future, other than statements of historical fact, are forward-looking statements, including, without limitation, statements, forecasts and outlook relating to the condition of end markets; future financial results or operating performance; future strategic actions; Howmet Aerospace's strategies, outlook, and business and financial prospects; and any future dividends and repurchases of its debt or equity securities. These statements reflect beliefs and assumptions that are based on Howmet Aerospace’s perception of historical trends, current conditions and expected future developments, as well as other factors Howmet Aerospace believes are appropriate in the circumstances. Forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and changes in circumstances that are difficult to predict, which could cause actual results to differ materially from those indicated by these statements. Such risks and uncertainties include, but are not limited to: (a) deterioration in global economic and financial market conditions generally; (b) unfavorable changes in the markets served by Howmet Aerospace; (c) the impact of potential cyber attacks and information technology or data security breaches; (d) the loss of significant customers or adverse changes in customers’ business or financial conditions; (e) manufacturing difficulties or other issues that impact product performance, quality or safety; (f) inability of suppliers to meet obligations due to supply chain disruptions or otherwise; (g) failure to attract and retain a qualified workforce and key personnel; (h) uncertainty of the duration, extent and impact of the COVID-19 pandemic on Howmet Aerospace’s business, results of operations, and financial condition; (i) the inability to achieve revenue growth, cash generation, restructuring plans, cost reductions, improvement in profitability, or strengthening of competitiveness and operations anticipated or targeted; (j) inability to meet increased demand, production targets or commitments; (k) competition from new product offerings, disruptive technologies or other developments; (l) geopolitical, economic, and regulatory risks relating to Howmet Aerospace’s global operations, including geopolitical and diplomatic tensions, instabilities and conflicts, as well as compliance with U.S. and foreign trade and tax laws, sanctions, embargoes and other regulations; (m) the outcome of contingencies, including legal proceedings, government or regulatory investigations, and environmental remediation, which can expose Howmet Aerospace to substantial costs and liabilities; (n) failure to comply with government contracting regulations; (o) adverse changes in discount rates or investment returns on pension assets; and (p) the other risk factors summarized in Howmet Aerospace’s Form 10-K for the year ended December 31, 2021 and other reports filed with the U.S. Securities and Exchange Commission. Market projections are subject to the risks discussed above and other risks in the market. The statements in this release are made as of the date of this release, even if subsequently made available by Howmet Aerospace on its website or otherwise. Howmet Aerospace disclaims any intention or obligation to update publicly any forward-looking statements, whether in response to new information, future events, or otherwise, except as required by applicable law.

Non-GAAP Financial Measures

Some of the information included in this release is derived from Howmet Aerospace’s consolidated financial information but is not presented in Howmet Aerospace’s financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). Certain of these data are considered “non-GAAP financial measures” under SEC rules. These non-GAAP financial measures supplement our GAAP disclosures and should not be considered an alternative to the GAAP measure. Reconciliations to the most directly comparable GAAP financial measures and management’s rationale for the use of the non-GAAP financial measures can be found in the schedules to this release.

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