Release Date: November 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Howmet Aerospace Inc (HWM, Financial) reported a strong third quarter with a year-over-year revenue growth of 11%, driven by a 17% increase in commercial aerospace.
- The company achieved a record EBITDA of $487 million with a margin of 26.5%, and operating income increased by 33% year-over-year.
- Earnings per share rose by 54% year-over-year to $0.71, and free cash flow was strong at $162 million.
- The company improved its financial leverage, with a net debt-to-EBITDA ratio at a record low of 1.6 times, and received a two-notch rating upgrade from Moody's.
- Howmet Aerospace Inc (HWM) continues to see strong demand in its Engine Products segment, with revenue up 18% year-over-year, and expects continued growth in commercial aerospace and defense markets.
Negative Points
- Wheels revenue declined significantly, with a decrease of 18% in Europe and 10% in North America, due to weaker market conditions.
- The company faced a shortfall in revenue from its wheels business, which was approximately $30 million below the previous quarter.
- Supply chain constraints, particularly affecting Boeing and Airbus, pose challenges to future production rates and revenue growth.
- The commercial transportation market weakened, with revenue down 12%, led by a slowdown in Europe and North America.
- Despite strong performance, the company remains cautious about future margin improvements due to potential increases in labor costs and the need for additional hiring.
Q & A Highlights
Q: How are you thinking about commercial build rates for 2025?
A: John Plant, CEO: It's challenging to specify build rates currently, especially for Boeing. We've reviewed external forecasts and believe a 30% increase is unrealistic. We've adjusted our expectations to a more feasible 12% year-on-year increase, considering the current production environment.
Q: Can you provide insights on aerospace aftermarket revenues and any potential destocking risks for 2025?
A: John Plant, CEO: We expect spares revenue to be about $1.25 billion this year, up from $1.1 billion. Our aftermarket exposure has increased from 11% in 2019 to 17% in 2024, and we anticipate it will exceed 20% in the coming years. This strategic shift reduces revenue volatility and is beneficial for shareholders.
Q: How are you planning production capacity for both current and new LEAP engine blades?
A: John Plant, CEO: We are increasing investment in our Engine business to meet robust demand for both OE and spares. We are working closely with customers to understand future demand and are committed to expanding our production capacity accordingly.
Q: What is driving the re-acceleration in incremental margins in Q4, and how should we think about this trend for next year?
A: John Plant, CEO: Margin trends are not linear and depend on top-line growth and efficiency. While we've seen productivity gains recently, we anticipate needing to increase hiring in 2025 to support new equipment and maintain quality. I can't provide specific margin guidance for next year at this time.
Q: Given market share gains in the engine side, would you expect aero revenue growth to accelerate in 2026?
A: John Plant, CEO: We anticipate easing supply chain constraints and increased aircraft production in 2026. The demand for new aircraft remains strong, driven by fuel efficiency and emissions concerns. We are optimistic about further growth in 2026, supported by increased spares demand and capacity expansion.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
