HWM - Earnings call transcript Q4 2020

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Operator

Good morning, ladies and gentlemen, and welcome to the Howmet Aerospace Fourth Quarter 2020 Results Conference Call. My name is Sia, and I will be the operator for today. [Operator Instructions] As a reminder, today’s conference is being recorded for replay purposes. I would now like to turn the conference call over to your host for today, Paul Luther, Vice President of Investor Relations. Please proceed.

Paul Luther

Sia. you, Thank welcome and and Howmet Fourth Aerospace Good XXXX to Results XXXX Full-year Conference Quarter morning, the Call. Executive Officer; I’m joined Officer; Ken Financial Executive Executive and Chairman and Giacobbe, Officer. and by John Toga Plant, Oal, Executive Vice Chief President Co-Chief Co-Chief by we have After session. John, a and Tolga question-and-answer Ken, comments will that I events and you will Forward-Looking this would like to Statements contain expectations. discussion remind relating future to

and results factors listed to could filings. Company’s press presentation differ in from find cause SEC that can in actual You and projections materially these today’s recent our earnings release the most

In I over our in found and addition, we like would John. have in comparable included most to be some the release that, non-GAAP press the financial to turn appendix discussion. measures to GAAP in today’s can in Reconciliations financial today’s call measures directly With the presentation.

John Plant

PT, everyone, Thanks, quarter call. fourth our welcome, to and

earnings segment as an speak performance, outlook same to format to overview Following I financial the Ken financial will return the for detail. last Tolga fourth of give to year. the I Howmet talk information, provide will quarter quarter’s XXXX plan further the to then and will call.

on regarding please let me commentary And move X. quarter fourth the played numbers. specific first, fourth expected to before qualitative some So and guided. The provide Slide moving quarter to as number out

quarter in the which which November. margin the out. the again year-over-year third contracts we in write-down the was of were on impact utilization improved revenues, in of long-term to improvement from the decremental which the outlook was the rose XX%. as margin Revenues a forecast. above corrections. third due lesser an from fourth provided included X% results expected to inventory Furthermore, of we $X third the labor fact, we compared order to incremental that held In approximately third both that the was the improved consensus in in the bought XX%, the quarter, quarter commercial decremental million that meet and and benefited Performance the were increase The revenues onto aerospace quarter margin quarter

same numbers. reductions quarter were specific quarter margin Revenues the while aerospace. XXXX, again, driven of consensus the the share per as XX% was mitigating And was XXXX market end to earnings in and to was, ahead Moving of was over X% XX.X% quarter aerospace of quarter the XXXX the of the reductions fourth price outlook margin and fourth lastly, fact, commercial EBITDA cost ahead adverse The XX%, mix. permanent reductions by in at quarter lower due the fourth EBITDA outlook. The fourth commercial and and increases. Performance and improved fourth by of range. than the in third our quarter top

at consecutive for cash. which third $XXX the of positive quarter Free flow is to positive cash was quarter fourth Moving separation. free cash the flow million, since

million of an ahead balance cash stock onetime was been at approximately net As throughout after $XX.XX. was above well securitization, free billion define flow we free and net free would percentage QX repurchasing the above cash of conservatively XXX%, et have flow income Year-end after million flow XXX%, indeed cash items was paydown, very our the at these guide cetera. through average the you mentioned. also after cash approximately pay of $XX outlook did we costs, $X.X million and common as would securitization. million flow a reduction incremental cash in of down receive an A outlook. includes $XX to severance items, and a been accounts contributions. The excluding $XX million million. pension of the cash tax Without $XXX flow have $XXX after AR everything, the $XXX know, QX million refund. of million free price voluntary of XX%, i.e., pension onetime as receivable year $XX cash Full-year in $XX

performance. highlight Now to to Tolga over it let turn me segment

Tolga Oal

you, Thank John.

numberX, let’s to So the [indiscernible] our worldwide Slide top fourth priority to the increase as move of in a please. quarter. people COVID continue is

continuously events. customer secured and with demand no operations Our major

focused with control, segments. management inventory in customers stranded capital Strict accounts on with the effective contributed containment remain expenditure targets in inventory costs performance. continue fluctuations the to outlook. quarter preservation Cash and collections the reductions Howmet’s to Structural strong background cash Class discussions in cost the quarter. segments in B. Effective specific Our cost locations the management different and manage the and variable receivable the extent fourth to exceeded sales continued fourth cash furloughs actions key

the and quarter. quarter. seasonal will permanent to and incremental inventory with move expectations. ahead with driving engine and aerospace improvement, contributed products. the in gas the variable Commercial showed start growth Let’s aerospace shutdown slide turbine adjustments quarter with have industrial impacts in third line repeating cost-outs in the our the from continued X engine slowing I not to Defense revenue our quarterly fourth fourth flexing side cost Effective plan, margins of please.

the these customers cost We commercial Systems our business fourth in highest our business distribution in discussion timing quarter. to the and aerospace last key inventory is locations Industrial of are balancing business the I quarter. across reductions of Fastening traction strengthen mentioned the permanent in continued continue. number earnings locations release with Fastening expecting to gained the grow, that fourth

loading for operating segment bridge small lead successful third time increase the Structures versus long to orders. operating continue optimized operations relatively showed a for Engineered flat model timing and revenue quarter quarter, cost in third fourth quarter of our in an improving continue revenue versus level we The while variable our pending reductions with quarter. fourth the margins furloughs flexing, with We targeted

fourth the additional the the quarter in quarterly plants plan Structural segment. ahead record headcount market also segment. plants reductions ahead latest contributed are we to our Costa for announcements implemented as to led Costa margins of ready of and the vehicle are build running XXX for get on rates. incremental We a to margin build Commercial in profit recovery the

to to content, in continue our the markets low-cost our increasing country incremental margins build led wheels, XX very of healthy the permanent increasing recover, fourth compressed keeping pounds costs and While quarter. revolutionary the share

now more me the Ken over turn Let to details on financials. provide it to

Kenneth Giacobbe

Thank you, Tolga.

move Slide X. let’s to Now

on let’s fourth start revenue. details quarter, additional For the with

meaningful basis, due in aerospace markets. turbine driven reduction As were XX% of by offset commercial On do to expected, aerospace aerospace a year-over-year, commercial X%, a inventory aerospace in grew commercial gas a the in commercial partially markets corrections. expect a revenue growth first XX% defense, was sequential XXXX XX% not quarter in and These customer by down and industrial we reduction recovery in lingering although transportation. continued

$XX the to outlook third earnings increases was quarter for and in-line $X.XX, of fourth defense which compared share our ahead at $XX they XX% had quarter were the Permanent items in cost reductions our top all growth. year-over-year, the cost end consensus XX% sequential and XX% and in reductions quarter. million compared Operating which $XX XXXX. for Permanent markets, XX% million million for quarter million transportation and increases of were aerospace year, quarter. in in income, $XXX excluding margins Regarding IGT was the per commercial range. double-digit the of the aerospace, ahead and of year, special price Fourth in revenue to with commercial representing were were and the total the was Price XX% Decremental quarter the improved the down to outlook. with continued which expectations.

year flow. average cash price of $XX common quarter, billion balance $X.X of after in $XXX an to stock and $XX.XX. the Moving at numbers, of The with we remaining the the which Directors add outlook. stock the sheet ahead John is separation repurchasing would from were covered repurchase finished and I fourth Board common authority post cash the full-year quarter additional an the in of that million million. the of

level was move X $X mix. was remains increases, a an debt-to-EBITDA net times margin decline of Lastly, our outlook price is reductions. EBITDA driven a credit of EBITDA quarter the EBITDA despite cost was and of Slide XX% XXXX facility improvement performance. revolving margin commercial in margin fourth as of to The summary permanent the same quarter variable Please Slide X.X ahead undrawn. cost fourth and and billion The XX.X% by of X. aerospace revenue the selection in unfavorable at

let’s Slide X. move to Now

revenue XX% or than and the profitability, outlook fourth segment revenue would better the I was out million in-line profit the that was point the into more with while $XX quarter outlook. moving at Before than X.XXX billion,

in down the Now was quarter. for more represent revenue performance. detail XX% commercial on fourth to quarter XX%, approximately driven year-over-year which total of continues aerospace, revenue Revenue by

down As XX% increase. commercial a was aerospace previously sequential year-over-year, X% showed mentioned, which

both to driven new largest in and by was XX% joint continued strike spares. engine second growth airplane quarter fighter for the demand market, builds show aerospace up on sequentially and XX% Our the and defense

year-over-year. both impacts the was which market, the largest Systems XX% wheels next commercial segments, down Fastening Our transportation, forged and

increased We XX% demand in continue market for to see improved this favorable trends sequentially.

oil other and up and gas was IGT, XX% up and and sequentially. up continues markets, year-over-year XX% comprised industrial of be was Finally, sequentially. makes which industrial of flat, which market and this XX% but X% to up IGT, strong, is general

Moving to Slide XX.

We full-year cover will quickly revenue performance.

and in down was strong down driven up approximately by was strong commercial the total down of recovery the year, Defense was which XX% approximately Commercial almost aerospace aerospace XXXX. and XX% revenue for which quarters. XX%. year down full-year, was was revenue, fourth XX% in Commercial represented XX%. a XX%, the the showed revenue. third For from transportation of throughout represents XX% aerospace, aerospace Defense the but trend was

Finally, up with in as a up market the weak XXXX. XX% the IGT markets IGT and other level industrial from X%, was rebounds

segment Now XX let’s results. move for Slide the to

gas third of a In and XX% engines the As the XX%, aerospace was expected, to improved was for compared as a of benefits prices. customer aerospace in presentation, provided aerospace for the IGT from in XX% we increase in to driven continued that defense XX% year-over-year by quarter. third to Decremental shows a engine partially increase Commercial fourth favorable the appendix year-over-year all Commercial segment corrections. inventory the segment’s how by the the from natural the XX% offset in improved schedule XX% fourth IGT, products quarter quarter. margins margins was revenue quarter down decremental in the quarter. down

aerospace aerospace improved continue let’s market. down down Fastening margins transportation quarter quarter. year-over-year XX%. on Also to in XX%, commercial Decremental the as XX% for the and corrections Systems Systems was experience in revenue Fastening segment segment, commercial to for Commercial the engine XX% compared we in XX% expected, to XX. quarter. Now Like the in Fastening the third move fourth the inventory was to down Systems was Slide

driven down move declines aerospace was on improved structures Slide down inventory in MAX and XX% segment was in XX% fourth the production XXX let’s customer for Engineered the Structures compared XX%, Now aerospace margins engineered for the was quarter. year-over-year revenue in to offset corrections XX. Engineered by quarter. Commercial Structures partially the Commercial increase Decremental quarter the in platforms. XX% a aerospace. year-over-year third XXX XX% to both defense for by and

to Wheels. Lastly, let’s Forged move Slide for please XX

improved Forged The revenue profit Mexico, sequentially X% operating volumes, but the which the was increased expected. XX%. cost XX% our profit improved as was year, of to down record at margins. Despite reductions. a production was with shift operating are the including last higher margin to than temporarily segment’s Moreover, driven high we year-over-year, by and lower wheel margin and Wheels low-cost reduced countries, able was continued Hungary revenues,

Lastly, market wheel. XX-pound we new increasing a innovative with been have share

our fires Now let’s for after for for were to due of at tax, Special primarily X a XX quarter special benefit proceeds million approximately items insurance $XX of items. received move to plants. Slide the

a like special favorable to how I tax severance comment perspective a primarily cost. Additionally, assessment on provide our would much separation further and items. of offset outcome post Spanish

charge million the refinanced Post a million Corporation. past including two items: of by undertook voluntary quarter, For And refinancing of a in second have gross in pension charges portion the The the bonds restructuring added program, of cash XXXX we XXXX separation, Arconic debt maturity major $XX cost a paid million first, separation pension of approximately U.K. our settlement of $XXX performance liability the years, XXXX. sheet down $XX balance and the a $XXX an in we and to to reduced the XXXX $XXX by two the were second, and which after-tax then and driven improvement of after-tax million. and of May million. our April, refinanced

netted balance, they the have other much pretty items, all out. the Regarding special

capital the to liquidity Slide move let’s and now structure So XX. on

XXXX. our Moreover, was since as $X.X approximately capital A improving gross Strong items XXXX significant U.K. in the we $XXX cash debt All net end continue million. on few and is has $X.X and and million note. our we focus separation. October mentioned, of generation was debt is additional decreased our year our We previously by pension reduced by at unsecured, billion liquidity. the $XXX liability billion. next to debt structure net maturity Gross debt of

$X our five-year First, billion undrawn. remains facility credit revolving

million sold reduction Second, we flow, debt, increases have $XXX of by was as working our XXXX. which John This reduced a free reduced and cash effectively adjusted mentioned. AR capital in securitization repayment in our AR XXXX

we were paying On bonds XX, of complete reduced By had due costs Lastly, XXXX, redemption $X interest on saved by We of are that at to million. used cost. hand early, cash the interest $XX January par additional bonds down no our basis, three XXXX April. approximately the months in costs. on an annual million

to it over John. Now turn let me back

John Plant

while Revenues outlook. fourth outlook, in please and move XX and XXXX you, quarter are exceeded. before with and Thank Ken, line Slide about on remarks the profit closing XXXX the we talking margin to is the for

ability line mix. exceeded continued some margin and the year, the XXXX cost and resulted less XX.X% XX% rate an throughout the scale same differentiated level in at commercial despite of increases EBITDA unfavorable expectations. outlook. Fourth and as in reductions fourth and which also aerospace was revenue Our of the products quarter price exceeded Permanent accelerated to quarter with our outlook

adjusted receivable million. contributions pension million free our $XXX and flow voluntary made $XX exceeded cash was of by accounts liquidity, reduced Full-year cash balance Regarding outlook. and were securitization

spent million severance $XXX we $XX $XXX at $XXX albeit flow Net million was of at While tax ahead by million. outlook cash free and the $XXX less over debt of favorable since for through CapEx X% costs the Full-year was were to separation. than for Adjusted was $XX refunds had some million. $XXX revenue. million outlook The of was second incurred, million quarters, $XXX of million depreciation the fourth million the full-year. reduced

operations heavy XXXX $XX average $XXX we balance into after Additionally, increased lifting, some phased another a guide was reduced the our balance of and the the the beat of sales year billion, to throughout and impact refinanced demand was to and year of $XX.XX. common Cash $XXX the sheet. gross improved of pension an million sheet price stock million. $X.X after by liability COVID million further pandemic the on repurchasing separation, at

on move Slide Now to let’s XX.

qualitatively. First, comment outlook let me on the XXXX

and the travel. for potential and Boeing. end Our its commercial transportation our industrial and aerospace, should vaccine Commercial view reflects rollout, may of routes, help growing. inventories, markets and travel less be which continue to turbines regarding healthy shortfall gas defense, has global especially visibility on dissipate Airline acceptance aerospace narrow-body improve, for impact especially

through improved expect move to clarity XXXX. We as on factors these we

Regarding which pipeline commercial we inventory build, will of This help both the as aerospace, to and into especially parts. help an aircraft build move will shift we forward rebuild beyond. and inventory situation, clearance increased aircraft expect XXXX

Revenue $XX expected for $X.X quarter move is let’s billion, or Now the to numbers. minus the plus specific to first be million.

$XXX a For million. and million so provided million, of $XXX a plus figure with with baseline $X EBITDA, we you $XX million to between minus range

is Please lingering for three inventory QX second third average the of million, the with average due And baseline of to with commercial per be XXXX, XX.X%. is $X.XX expect fourth margin share that quarter, baseline ranged In from guide to $X.XXX corrections. a EBITDA quarter last Our is little a range we the earnings QX and from quarter the in-line at to quarters. $X.XX and was $X.XX. down to aerospace XX.X% note

XX.X% billion of of the of For billion, billion billion billion $XXX. billion, other of minus range year, revenues to $X.XX $XXX in $X.XX baseline a we EBITDA $XX at again, with $X.X $X.XX with $X.X range baseline expect a of plus words, range to $X.XX $X.XX share with to minus million, or to for cash plus with free $XX plus $X.XX. $XX $XXX baseline per flow at XX.X%.Earnings range minus margin, XX.X% $XX. a year And of million. at the a EBITDA

expected $XXX XXXX XX.X% provide few The the expected above XX.X%, about be cash will CapEx, assumptions. Price XXXX to range Let rate outlook XX%. operational in into at be have cost last to a $XXX contributions about compared further the $XXX Maybe into million. put million similar increases we you million. to me tax be range of Pension/OPEB The XXXX million. are conversion comments are The free again with couple our year’s XXXX put XX%. XX.X%. carryover is restructuring average to Adjusted tax million be of the And $XXX cash the rate expected in XXX%, long-term flow increases. for rate of above $XXX a will cash to to is to to increase to perspective.

that by expectation year. And baseline, of is to normal the lower answer. at above a to for the to see revenue and versus bandwidth revenue versus we award can are smaller, XXXX You and the there baseline begins That $X.X quarter the concludes the respectable have billion year before of an Thank accelerate upside. outlook my quarterly move for but in during Margins use, guide higher downside commentary billion the $X.X a and year. our you. the we bandwidth we question first

Operator

And Cowen. Instructions] Gautam Thank will with go come question first you. the Khanna [Operator from ahead. Please

Gautam Khanna

XXX morning could Yes, Because the sequentially XXXX and year lower margin wondering Ken, looks give QX, a us John assumptions like more if good I EBITDA for was it implied you is it thanks, the QX in little is of guidance. you. If What guys. your on bit situation and And QX. us I if then of has from a after sequential? that. Thank on mix what in the have follow-up worsened last if could explains of I’m that below wondering gotten just sequentially kind November. the updated you worse And

John Plant

go I Gautam. I you mean, number. round And that a have at will a me give Let

so. give XX, or at XX, year, last that take, revenues quarter $X were XX second QX our So is or million average XX, And XX XX XXXX. QX

or it with what placed XX. at baseline, X,XXX call So a bandwidth we plus what minus we around

the as not essentially of same average three quarter, I by vaccine, had the just pretty reductions, last statement load into things And QX we the in lower factors. view way of inventory impact as say, plants last significant the much essentially, the rollout it are in our certain is quarters. the customer my customer then With third closed is feeling or QX, quarter. as feels And though were and of is So now, that year. the of went airline in the inventory being corrections seeing Right first the would April opaque. particular, a we we although that correction

anything, almost closing in reduced into fact, travel problematical of particularly load the actually down substantially certain and rather improving. anything, Europe than In U.K. airline travel factors international if with the has bit have become, more if a little in countries, air an

arms I there is my the particular, actually trying whole has now, vaccine, underwhelming. ago, And people’s observe feels we expected. also could And and the and have it get never just the which process the below in then should from for of of indeed, register can process is a mind, of also right say, to the celebrate. personal little get some or been, talk weeks maybe going the shot. that first so And and experience, I to that, be even and will got vaccine, look chart at to you having rollout And available that have into couple second to

rollout say, let’s whole has been, underwhelming. that So

and there And is on upside travel is the so the to think at and you celebrate. when build, moment impact therefore, the about little what

about first quarters. just three it is with roughly can a around say see. average the bandwidth That in is variability best it. quarter I And so mean we of is we of line

than relatively you to relatively what what call this as is and higher a a rely what we could say that with outlook, think it upon So can to is we try we small upside. be, downside with rather baseline put like

still had the you a minus the picture or margin ahead And provide reduction the the one when degree and foresight mean the you what so and just normally moment get don’t really gave upside. really it opaqueness say, for I a ourselves So our the I we sort in given courage and feels of first gas solid. to not defense us, a yet industrial solid. for the again and do around we have also stations. I just for did a it do midpoint at it we it. fossil say, I oil an power regarding is future the want full-year. guidance asymmetrical still reasonable natural oil of lesser of The person and to compared and is used And the you year, in of And have mean, baseline you we being EBITDA an we calling improvement And quarter. demand. pretty - with difficult factors then see quarter, to ahead The don’t is is would the just giving market pretty guidance is absolute at asymmetrical commercial think looking picture, prices understand. many any is gas while better, transportation and higher the that then to markets that for have prevalent fuel in but there of we the And year. plus skis

yet news maybe think, appears on one the All down is And lower the is it still to in the this And And Whereas we XXX, XX% is haven’t is had then commercial increasing don’t or bit little which reduced inventory, we have fourth on get the the see and the a inventory going the first what it us way that have thought. at you news a in first great, half year-on-year. of is the from significant the XXX, the good. situation. we are give of in aero, we indicated course horizon rate quarter, other. on of and the the that map we in bright build any Commercial for quarter will airbus the I courage build mean be to to an year AXXX, say to better moment, takeout the year. or that either significantly aerospace. a while did there up

the commented that we it in a that for I it is through are move again, why a And see incremental context do run the is $X.X I year. baseline, we view. hopefully, And cover X.X that the rate hoping of it Gautam? the the let’s year. out, is first bundle back Should asymmetrical with the revenues. into So billion will for that as a Does say, that. that We give view around of us, quarter, with taking the say, half higher

Gautam Khanna

It maybe of what can up in now, that based know QX. QX, visibility as you give does. at down And you on us, segments you do late have What middle or you sequentially of this sequentially expect point? if to be

John Plant

have good I the around and transportation aerospace. around cautious just being find business probably commercial thoughts slightly up commercial myself

I to others, recognize the With didn’t much talk going I roughly to the question. it call really margin I’m in-line.

You answered, cover out well. me that as let

to than why quarter. be know market first point be do confident commercial put around the about. whole think, guided give I revenue the than uncertainty at good to enough of Because I bandwidth of could quarter margin think the And which that assume I is this around recognize side, possibly time. do about it XXXX, feel Conceivably, the going quarter is is is cautious I you even think, all, than not we can and of are - or that, saying thoughts a on the the you at first we don’t in XXXX. to my at But so aerospace that full we is be a fourth our XX% that of I we the do, because quite that ground take, are we just enough moment, probably at solid higher that we stronger moment, that the in the in I So numbers is run have end or as feel within say first that. as it feel good at over And the higher that, higher the choose don’t that as rate XXXX.

this confident where better, zone we be we at are just to in While planning feel the point. hope for we

So hopefully as out of margin the it you. that well covers side for

Gautam Khanna

you. Thank

Operator

go Melius The Carter ahead. next from question will Copeland with come Please Research.

Carter Copeland

Hi good morning.

Just a that. follow-up to quick

can a how plan? On the is headwind cost to sense a profit give and us variable the is of your built furloughs, of flexing in that that XXXX you into much

John Plant

required potential moment, to say, we furlough. There is back of we just game sure ourselves, be on bring are to top make the people some, we our said retraining, the we hope just to that may need, At there treat have want and both may from we And and and pandemic we that, that Despite serious. will I again. promises were say, are maintain track indices promise because disruption both delivery every quality actually improved quality year our indices very that our to all record. is last let’s do

we So the little a may earlier for bit back be bringing from there that assumed people have immediately demand profile. drag than of

to the Just make that train, sure end of full fully ready to go.

for saw quarter, the good. third the on to you that and fourth we ready labor quarter, as our some hold in same Just did was

is so assumption. And a just planning it again,

ahead brought problem, and a I lead just quality matter which back But with do not yet. we that is does have days because to have process, then Carter. that just a efficiency anybody We that that what do high for hopeful that because is the problem are call us to we of it we in better

Carter Copeland

real one. And Okay. then another just quick

should On the in rolling we all way of get it in, any you Is that how is the forged it still substantially move, it benefit did transferred think that taken its wheels, give low-cost place. Just sense now there has of XXXX? is sourcing and And complete? transition Hungary additional a over? when us can much

John Plant

Yes.

And that where in increasingly regard of quarters is all, last staffing we come have year. the still in, we were that. in from first fourth made been there for So that. and investment third have more the we been And utilizing to we

of say, So it. of try we of in the half we to use the because old move utilization is from new of XXXX. some there come on the that necessarily efficiency in still have gain to some plants terms tend first because therefore, to of can the the And margin,

some invest exit the quarter leading on which, more wheels year, the XXXX, that adjusting been all as footprint, our I And stream the into towards XXXX. come will also We healthy rate benefits during leading think, monies we for to again, basically of us really Hungary to to fourth chosen business. run the our manufacturing and to, but

commentaries and fourth previous we that to to moment, strong be margin a shows then XXXX think similar as my quarter. what have you levels seen, the the really of that XXXX holds. And So incremental seen XXXX still in you above, all have know, I at at

was hesitate number if as into back we give works to if So incremental to will you when it recovery of as I can good. see matter has tremendous. that hope begin volume just going because see what businesses one the a call, we which that basically, we in recovery. aerospace to so future. that, But commercial to incremental and on And in is it I some when. later mean, It come feel give fabulous I our volume we to. of everything while replicate still out divisions, our you planned, needs are it confident it will margin then the margin sounds be

Carter Copeland

Great. the for Thanks color John.

John Plant

Thank you.

Operator

with from will ahead. Stallard come Please The next Vertical go question Research. Robert

Robert Stallard

destocking also Airbus you this see to numbers? and had And the just is your earlier sort you from when said we the do into that line much can to I it John, the and morning. for built as MAX. to Good and of follow-up still chain Boeing AXXX relates your XXXX on how sort where we on on restocking much. point have so you bottom what there Thanks inventory product? of in is this is forecast go think And the what

John Plant

Okay.

XXXX, for So when through we year. originally AXXXs just XX plan the we assumed flat the built

been supplying parts we had rate. at recognized the We that not XX also

So as the both when of a engine this you dried sets are building guesstimate. for the we is second quarter year at to products the the always take the some It we were, Pratt Aviation XX know, think through goes the chain. this at in we supply our quarter. as ahead, by XX% both second-tier Whitney operate going both and variants let’s GE will AXXX. - XX first difficult, going say, swag through have for completely that two through destocking also rate to that particularly products & expectation in now. up we and And is build And start are My year. it the the engine you business, end levels to the will We to have I’m fourth

So it what when Airbus spots, that I of in a this little bright two us we smile -- transportation have - our call bit brings won gives a that to the face. lift, got is we and commercial all and

per seven supplying they of the Boeing end than the XXXX, for know we other month have the at building hand, been been On that we of in at whereas less back moment, have rate. half

to shipments rate and So then is XX half hopefully, small this it to, the the of And XXXX, aircraft. then, XX, that start part XXs just through before it run of first then of matching continue they we to And of year. the numbers. build certainly we expect the well then will by the when and rate raise second into have quarter

this I the up the occur? little rate, great. a Now were out of That don’t of that rate, in we note is quarter, aircraft or quarter. in fourth aircraft the a the than the there know fourth that built does of parked is at by, which low more the build I is order. the that XX lot sorry. the the the is But build that XXX fact the just think, XXX regarding bit given point. when of information deliveries Boeing RyanAir inventory clearance I I note question have they

to So is there a go. still lot

for see we flow information Bear Boeing stated the we in to-date, build mind terms, have as inventory And in begins become will year, once I all increasingly to in think the actual so rates. this sequentially we confident that to obviously dissipating we But seen those XX-months. is reductions aircraft park increases. confident, feel note have rates last the for that us increase in to dissipated. reconfirm to build And And us. we see got planned the

in point tend little be this cautious at time. we to So a bit

Robert Stallard

great. Thanks John. That is

John Plant

you. Thank

Operator

next come Please will Barclays. from question The Strauss ahead. go David with

David Strauss

you pieces Ken, free working you XXXX through, XXXX, flow looks here flat. just Thanks about are CapEx are program? the guess, at of walk I capital, up, cash severance midpoint assuming thinking. you well? some Ken. as taxes Is kind you what for headwind that is is us forecasting Could morning pension on securitization lot is guys. of walk cash net little, are good Probably A are down for what moving the this a to then And a down, year down. like the it

Kenneth Giacobbe

Yes that flow so have a provided. couple of free things cash the on we

and nice basis. year-over-year contributions on a got contributions on pension a improvement have We there OPEB the cash

exited the million we you for the that liability XX was as us around side. about XXXX cost bps rate work know, unfavorable, didn’t discount on us. as As It favorably $XXX

Asset for business, the XX%. strong returns were very over

when we work kind of to pension there. and program, the out. at that are done last But netted the see XX-months, OPEB that especially on going favorability So a look you we have over the

The would before. much have look I tax we pretty rate what things the other same at as the had

year. likely interest see the going and be capital, do as working for walk question, that David, is million you on I though can And You focused are around you the right. most expense like the $XXX it is know we to the are, big

that look at was the million use of working we We burn took which source in a not a securitization in was $XXX AR down number. As capital or XXXX, right. XXXX, program, cash

all is there. that So embedded

wasn’t So the even source it or consider a AR securitization down the we bring use program. when to

year we ramp all think on, modest we So of second we embedded inventory as XXXX, talked that as as revenue working to million about channel. out clear of the I working in $XXX that as of depend into some we John guide move half and cash source capital gave the to this of be the going we to well that the as expect capital, as is you. a stranded the go

John Plant

don’t AR. we Ken, The XXXX we thing leave in of cover, any point one that change The was think alone is this at time. that didn’t plan we We done. in will just million $XXX

Kenneth Giacobbe

Yes, right.

can that. there, missed Sorry, change. John, $XXX I be million no

David Strauss

nothing do. the to of I side, does benefit guess, guidance obviously, EPS pretty not? any debt balance, a And your capital John, repurchase? about big share sitting cash on or reflect with And Alright. sort deployment How are thinking you

John Plant

the in I’m on if should cash anything say, move on which early, to, should thing moment just the our regarding them assumed consideration, about. at XXXX on balances. we that we that. a up the due No, is we wanted focused feelings is The haven’t let’s anything my And than bond In EPS we date are maturities. more we or roll thinking sort of our

that in I in will So call basket. in is it, the the,

trigger, any is there I aggressive on more for in terms us thoughts solidification aerospace of be My would note. further think, to call, share are commercial In rate. regard of seeing the the repurchases be that of build

solidify would that I’m in it more from on convinced some state, be I is builds becomes would done is about off is over modest quarters What That that so rate have last think of than for aircraft And is side. the of, the or a want it this [worst] aggressive way in trigger than is that to bolder it be couple skylines, be? widebody to the going shares (Ph) we the last? it to fluid the the picking me terms way once of any be, I really significant

scheduled a trigger particularly share notice. for skylines the skylines into lift, of see we all to on. the that as build, because XXXX. major feel news deploying buyback begin into in. the in and is see good those any I I The solidifies scheduled February. are If we Airbus about. go And going actually told centered is to cash those taking that are So that confident those the I put back than half increases, being are rather in just system talked inventory we the see to into builds

number. see seen maybe more the those by that first Because, XX, even - a of a that, releases. before XX in to month, production in from of a skyline, from And you we a than or let’s see know, them skyline two when XX, the maybe more confidence So new on XX the side going then confident see XX we as moving three end you is the than get XX to But just move Airbus haven’t days. say, you it we XX. to, will

and just we would I than it for form, clearance good. to say, that see So Boeing. widebody I is then we just the News media yes, the to think I and where schedule is the of see need like form are point inventory And what in rather doing

in terms demand of share We our what margins pretty incremental increase that good it off the of for maybe cash we see will any is and will a deployment to have view then be buyback. as races,

David Strauss

Thanks. Good luck. makes sense. it Alright,

John Plant

you. Thank

Operator

from will Crédit with The Please ahead. go next come Robert question Suisse. Spingarn

Robert Spingarn

GTF increase things. hot MRO opportunities work, some of little for more things XX% visits, XXXX upgrades, John, the Are a of first those up? that a drive Are What aerospace upgrades, MTU Hi getting in kind them on normal any good that about is turbine commercial XX% some can one-off time there of thinking talked on that morning. sorts XXXX? low-pressure there just drive maybe in GTF incoming section to might shop there I’m specific. up

John Plant

space the our is quarters profile regard. have last to going XXXX two to any first now, quarters in in XXXX of ourselves, Right said we compared over two not to change the

effective the last the couple for the example, So our revenues aerospace, year XX% to normal even for compared engine when you like last at for months. XX%, commercial in run think we quarters, if we $XXX been rate certain has about million of have, down, XX%, look business

we be to that into think just are back the So half and customers And We at still assume some that for be is could that that, going the off. for I less along, our to of commentary just us of only striding be it, to case I continues, accept it benefit that just difficult assumed that, because we clearly, always of and of anything it. not have quarters. there, a increase is at in increase next not two around what just or build solidification choosing an what could large to moved is have increase seeing we levels we let’s than plan see that cannibalized the narrow-body is believe providing are the for is the there that XX% because rate a moment albeit normalized pretty necessarily call tough. would a year. before come would is willing does are the we see when But note back, couple moment, again, that And MRO. it out then thought we

Robert Spingarn

do? then Pratt into or if markets insight idea revisit separate content just separate Okay. if airfoils the it there thought of if I And there? be is their going I delicate any new but And know topic, from share facility. is to what your and it what And that is a you might would I work is is in happening that and more

John Plant

all, comes regard accurate is and machining, previous They million, those castings the XXXX obviously, necessary to casting, decided investment out. previously, straightforward, back it they to some is been think. they to after achieve, cost-effective in It to able their have oils which sold all, we acquire as coring hole pretty drilling, provide need, never coatings. the Pratt are performance selective believe of had because the covers in is not coring, make more that business felt same both exactly business be that It in as a in the year of yields, really. air to previously topic. First delicate for The to reimbursement. the able I the be $XXX stated, first quality

used all XXXX, that we is is also that. So renewed area. demand in let’s the view very the our in of of be have time capacity significantly. it that Then spares stuff grow our there note Pratt that that to LTA we And XXXX is XXXX, a demand in call lot spares could in with slated frame, increase this for What is there.

no good. really, And further, to have that information is had. so comment all we Nothing

Robert Spingarn

Thank very Okay. much. you

John Plant

you. Thank

Operator

Seifman Please ahead. go JPMorgan. come Seth The from next will question with

Seth Seifman

and some good XXXX. market, some We and Thanks going & end you very Whitney defense saw the I good had guess, growth about forward. in growth nice The much growth talked customer, morning. further main in Pratt

the of a things nearing about of rate. out. sort flattening sort Lockheed’s talked talked rate production You run about F-XX,

So sort might drive do of year-end there F-XX the places that or of growth or year rate able we run gains and the not share be been this think to there? growth normalizing sort maybe about defense driving growth have the continue outside to

John Plant

sales. perspective in maybe F-XX is Again, for XX% about Yes. about yourself, defense

than less is half. it So

do significant & elsewhere. of structural casting Pratt lot as other military applications We applications GE as and have business So with we a Whitney. supply lot of well FL defense a

deplete a wanted just even that budgets, when with necessarily Military in little the percentage of are spent. end baseline for the to in is money. So the all course of you. they still don’t hike a similar is are of year. move Budgets bit year towards I a often the Money

And budget see that so are and that generally but terms quarter this cadence my in our previous it moneys in just see in have note year bit early in OE the we through any maybe bill, in that, thought lower the seen similar we maybe is years part slightly of we of, is and the the increasing and second be all said year spares more XXXX. surprise because fourth remains in slightly of little that us, solid sales The believe nothing modest And of wouldn’t half just military higher we the will at point part as the when budget great healthy. for of the a be of defense again, well. a F-XX the spent. higher Having slightly build, year XXXX, of more

Seth Seifman

radar bit recently. people’s screens Great. inflation of Thanks. And to more then come has as a follow-up, little the idea on a

think something in would impacts. the not that at which all is degree me in the some should segment, aware I been aluminum part Is rest, for the all been to days we And Forged be discussion. to side, occasionally aerospace at Wheels on there back striking the raw it then be business? at of the materials have TCS Arconic the occasionally

at case of with effectively really kind kind fairly And we that is so consideration. not working expect the of remain and to that expect should -- to the remain pass-through being

John Plant

the that XX% [indiscernible]. here of it, the metals and should XX%, in mean cobalt back-to-back year, it should in as like lag a then terms issue, much shoot bit course so say, vanadium situation, let’s aluminum I there when a is massively. matter as But the out have may normal that in whether corridors are it you move or an doesn’t those aerospace call materials metals aluminum, be wheels, of, in if as extreme. including are if pass-through our a of whether I so course whether XX% myself, commercial or is But pretty it a wheel. the massive is any quarter maybe or with a nickel base, I But maybe I is or product a feel Yes. customer let’s agreements it call that

Kenneth Giacobbe

mentioned, agreements the pass-through. I that, Seifman, And place. add XX% hedging to we for would plus John remaining just as in piece, have

whole goes away. that days from that volatility Inc. piece Arconic So

Seth Seifman

Great. No, that clarifies things. you. Thank

John Plant

that back lot remind as Corp. XXXX now of well. lot just for spend a in what aluminum in pass-through Also covered that a of is terms of out you and correcting time we had Arconic that

a So diminished for of it feature was of problem and Howmet. not that feature business a a

Operator

The question final Sachs. Goldman with ahead. Please from Noah Poponak is go

Noah Poponak

little into the back the like piece morning that mentioned number business, translates Hi from of think, sustainable, you margin, of back volume, bit had business And kind call, for to on case? that half in I I you better you sounded is or is the saying hearing circle as better margin the good volume, you you to then accurate? as think of to translating everyone. a it quantify then this aerospace of you that I’m it were And XXXX that to literally have XXXX everything forged can the over incremental real being wanted XX% us? John, this

John Plant

say I more comment. first. use it question me directional a let when back the is obviously, was It your -- Well, end of of

at it XX% are margin quarter, that have seeing margin. I I EBITDA and the business I fourth we it intentions hopeful volumes incremental volume the Yes, do. EBITDA in And the in of rather backwards margins was because you that of wheels to to going wheels I are and just Ken you think I is returns, as which think I’m was specific it give I margin, incremental, I’m is told good. sustainable going So mean had. the healthy. ask terms no

incremental? So on Ken, can comment the you

Kenneth Giacobbe

slide that Yes. in the have for put perspective, from in as John the appendix EBITDA a an other we details right. QX at so has wheels Noah, mentioned, the XX.X%, as But businesses well.

of also invested As adjusted footprint we we have in country some areas, well. low-cost leverage them the the and as have production

have have we would back expansions in geography, we that of just move the quickly. was in production the global the we then has out got business is of this has of team last terms So wheels improved business brought the done in in to the as job are we the And taking benefit the the as terrific business of come costs as terms improved people I last mention very to a of And years. going the several The volume how year thing footprint. But forward. surgical The started over well. yields in. help the that wheels back

PPMs a from data wheels testament in business team. quality perspective, XX. that will real I to point a our you So one is than And give less

So right. one zero,

So QX And very the good the was from QX to off incremental well. production there process charts. as

Noah Poponak

Right.

Okay.

discussion. situation revenue, Just for some equipment outside It and of guidance one the revenue the would most seem businesses like the of on aerospace follow-up sequential XXXX have the into of walk revenue the with coming the visibility sort already original lot higher, there within the then down. MAX, sorting the XX is just moving the equipment, improving or AXXX unique original improving. pieces of given a aerospace is And

provided XXXX? tell Are equipment XXXX you Can are. doing you are higher as in sure year? never the those lower where revenue XXXX exactly just to revenues aggregate move original are you We today, us you what exiting the guidance or total exiting compared through aerospace

John Plant

Higher. a lot by strongly moving inventory exit I we XXXX that pieces adjustments, year as straightforward. believe. complicated and I basically would the what but rising pretty of say, say will XXXX, is is

Noah Poponak

Okay. Great.

the more the lift than XX? the the step on down So on is incremental narrow-body side

John Plant

Yes.

Noah Poponak

Okay. Thanks much. very

John Plant

Okay. Thank you.

Operator

have today’s the thank for gentlemen, Q&A time conference of in the reached allotted call. for session. you and the We participating end Ladies

disconnect. may You all

Howmet Aerospace (HWM) 3 Feb 212020 Q4 Earnings call transcript