Howmet Aerospace Reports Fourth Quarter 2021 and Full Year 2021 Results

Improved Margins, Strong Cash Generation, ~$845 Million Debt Reduction, $430 Million Share Repurchases

Howmet Aerospace (NYSE:HWM):

Fourth Quarter 2021 Highlights

• Revenue of $1.3 billion, up 4% year over year
• Income from continuing operations of $77 million, or $0.18 per share, versus income from continuing operations of $106 million, or $0.24 per share, in the fourth quarter 2020
• Income from continuing operations excluding special items of $130 million, or $0.30 per share, versus $92 million, or $0.21 per share, in the fourth quarter 2020
• Generated $303 million cash from operations and $242 million of adjusted free cash flow; $270 million of cash used for financing activities; and $37 million of cash used for investing activities
• Cash balance at end of quarter of $722 million including impacts of common stock repurchases and debt repurchase

Full Year 2021 Highlights

• Revenue of $5.0 billion, down 5% year over year
• Structural cost reductions of approximately $130 million achieved
• Income from continuing operations of $258 million, or $0.59 per share, versus income from continuing operations of $211 million, or $0.48 per share, in the full year 2020
• Income from continuing operations excluding special items of $442 million, or $1.01 per share, versus $354 million, or $0.80 per share ($0.77 per share including pre-separation allocations), in the full year 2020
• Generated $449 million cash from operations and $517 million of adjusted free cash flow; $1.4 billion of cash used for financing activities; and $107 million of cash provided from investing activities

2022 Guidance¹

Key Announcements: Capital Allocation

• In the fourth quarter 2021, the Company repurchased approximately 6.8 million shares of its common stock for $205 million, bringing full year 2021 share repurchases to approximately 13.4 million shares for $430 million at an average price of $32.07. In January 2022, the Company repurchased approximately 3.0 million shares for $100 million. As of February 1, 2022, total share repurchase authorization available was $1.247 billion.
• Debt actions taken over the course of full year 2021 reduced annualized interest expense by approximately $70 million.
• On January 13, 2022, the Board of Directors declared a quarterly dividend of $0.02 per share on the Company’s outstanding common stock, to be paid on February 25, 2022 to holders of record at the close of business on February 4, 2022. In the fourth quarter of 2021, a quarterly common stock dividend of $0.02 per share was paid on November 25, 2021.

Howmet Aerospace (NYSE: HWM) today reported fourth quarter 2021 and full year 2021 results. The Company reported fourth quarter revenues of $1.3 billion, up 4% year over year, primarily driven by growth in the commercial aerospace and commercial transportation markets as well as favorable product pricing, partially offset by declines in the defense aerospace market. Additionally, income from continuing operations was $77 million, or $0.18 per share, in the fourth quarter 2021 versus income from continuing operations of $106 million, or $0.24 per share, in the fourth quarter 2020. Income from continuing operations excluding special items was $130 million, or $0.30 per share, in the fourth quarter 2021, versus $92 million, or $0.21 per share, in the fourth quarter 2020. Income from continuing operations in the fourth quarter 2021 included a $53 million charge from special items, principally related to settling pension liabilities.

Fourth quarter 2021 operating income was $147 million, down 33% year over year. Operating income excluding special items was $229 million, up 7% year over year. The year-over-year increase was driven by growth in the commercial aerospace and commercial transportation markets, variable and fixed cost reductions, and favorable product pricing, partially offset by declines in the defense aerospace market. Operating income margin, excluding special items, was up approximately 40 basis points year over year to 17.8%.

Full year 2021 operating income was $748 million, up 19% versus the full year 2020. Operating income excluding special items was $866 million, up 7% versus the full year 2020. The year-over-year increase was driven by growth in the commercial transportation and industrial gas turbine markets, variable and fixed cost reductions, and favorable product pricing, partially offset by declines in the commercial aerospace and defense aerospace markets. Operating income margin, excluding special items, was up approximately 200 basis points year over year to 17.4%.

Howmet Aerospace Executive Chairman and Chief Executive Officer John Plant said, “Howmet Aerospace delivered a strong finish to a challenging 2021, performing well despite the effects of the new COVID-19 variant and continued lack of Boeing 787 aircraft build. Fourth quarter 2021 revenue increased 4% year over year and was in line with the third quarter 2021, while adjusted EBITDA margin of 23% exceeded expectations and marked a healthy exit rate heading into 2022. Full year Adjusted Free Cash Flow was strong at $517 million, well ahead of expectations with healthy conversion of net income.”

Mr. Plant continued, “The leading indicators for air travel continue to show improvement, particularly for domestic travel. We expect to see accelerating revenue growth through 2022 following a flat first quarter 2022 relative to fourth quarter 2021.”

“Our liquidity position remains strong, supported by continued solid free cash flow generation. We ended 2021 with approximately $722 million of cash, after reducing debt by approximately $845 million, repurchasing $430 million of stock, and reinstating our common stock dividend during the year. Debt actions taken over the course of 2021 will reduce annualized interest costs by approximately $70 million. Furthermore, we repurchased an additional $100 million of stock in January 2022, demonstrating confidence in future cash flow generation.”

Fourth Quarter 2021 Segment Performance

Engine Products

Engine Products reported revenue of $605 million, an increase of 9% year over year, driven by growth in the commercial aerospace market, partially offset by declines in the defense aerospace market. Segment operating profit was $119 million, up 10% year over year, driven by favorable sales volumes in the commercial aerospace market as well as variable and fixed cost reductions, partially offset by volume declines in the defense aerospace market. The segment added approximately 150 headcount in the quarter in anticipation of revenue increases into 2022. Segment operating profit margin increased approximately 20 basis points year over year to 19.7%.

Fastening Systems

Fastening Systems reported revenue of $256 million, a decrease of 3% year over year due to declines in the commercial aerospace market, primarily driven by Boeing 787 production declines, partly offset by growth in the commercial transportation market. Segment operating profit was $48 million, flat year over year, with favorable sales volumes in the commercial transportation market and variable and fixed cost reductions offset by volume declines in the commercial aerospace market. Segment operating profit margin increased approximately 50 basis points year over year to 18.8%.

Engineered Structures

Engineered Structures reported revenue of $190 million, a decrease of 12% year over year due to declines in the defense aerospace market. Commercial aerospace revenue in this segment increased year over year on narrow body recovery, offset by Boeing 787 production declines. Segment operating profit was $19 million, up 19% year over year, driven by variable and fixed cost reductions, partially offset by volume declines in the defense aerospace market. Segment operating profit margin increased approximately 260 basis points year over year to 10.0%.

Forged Wheels

Forged Wheels reported revenue of $234 million, an increase of 15% year over year due to higher metal prices with steady demand in the commercial transportation market. Segment operating profit was $62 million, flat year over year. Segment operating profit margin decreased approximately 400 basis points year over year to 26.5%, driven primarily by higher metal prices.

Full Year 2021 Segment Performance

Segment performance in 2021 included the following:

• Engine Products revenue of $2.3 billion, down 5% year over year; segment operating profit was $440 million, up $23 million year over year; segment operating profit margin was 19.3%, up 200 basis points year over year.
• Fastening Systems revenue of $1.0 billion, down 16% year over year; segment operating profit was $190 million, down $57 million year over year; segment operating profit margin was 18.2%, down 160 basis points year over year.
• Engineered Structures revenue of $725 million, down 22% year over year; segment operating profit was $54 million, down $19 million year over year; segment operating profit margin was 7.4%, down 50 basis points year over year.
• Forged Wheels revenue of $921 million, up 36% year over year; segment operating profit was $255 million, up $102 million year over year; segment operating profit margin was 27.7%, up 520 basis points year over year.

2022 Guidance¹

Repurchased Approximately 13.4 Million Shares in Full Year 2021 and Approximately 3.0 Million Shares in January 2022

In the fourth quarter 2021, the Company repurchased approximately 6.8 million shares of its common stock for $205 million, bringing full year 2021 share repurchases to approximately 13.4 million shares for $430 million at an average price of $32.07. In January 2022, the Company repurchased approximately 3.0 million shares for $100 million. As of February 1, 2022, total share repurchase authorization available was $1.247 billion.

Debt Actions During 2021 Reduce Annualized Interest Expense by Approximately $70 Million

In the fourth quarter 2021, Howmet Aerospace repurchased approximately $47 million aggregate principal amount of its 5.125% Notes due 2024. Debt actions taken over the course of full year 2021 reduced annualized interest expense by approximately $70 million.

Board of Directors Declared Common Stock Dividend of $0.02 Per Share

• On January 13, 2022, the Board of Directors declared a quarterly dividend of $0.02 per share on the Company’s outstanding common stock, to be paid on February 25, 2022 to holders of record at the close of business on February 4, 2022. In the fourth quarter of 2021, a quarterly common stock dividend of $0.02 per share was paid on November 25, 2021.

Howmet Aerospace will hold its quarterly conference call at 9:30 AM Eastern Time on Wednesday, February 2, 2022. 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 2, 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 titanium structural parts necessary for mission-critical performance and efficiency in aerospace and defense applications, as well as forged wheels for commercial transportation. With nearly 1,150 granted and pending patents, the Company’s differentiated technologies enable lighter, more fuel-efficient aircraft 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 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) uncertainty of the duration, extent and impact of the COVID-19 pandemic on Howmet Aerospace’s business, results of operations, and financial condition; (b) deterioration in global economic and financial market conditions generally (including as a result of COVID-19 and its effects, among other things, on global supply, demand, and distribution disruptions); (c) unfavorable changes in the markets served by Howmet Aerospace; (d) the impact of potential cyber attacks and information technology or data security breaches; (e) the loss of significant customers or adverse changes in customers’ business or financial conditions; (f) manufacturing difficulties or other issues that impact product performance, quality or safety; (g) inability of suppliers to meet obligations due to supply chain disruptions or otherwise; (h) the inability to achieve revenue growth, cash generation, cost savings, restructuring plans, cost reductions, improvement in profitability, or strengthening of competitiveness and operations anticipated or targeted; (i) inability to meet increased demand, production targets or commitments; (j) competition from new product offerings, disruptive technologies or other developments; (k) geopolitical, economic, and regulatory risks relating to Howmet Aerospace’s global operations, including compliance with U.S. and foreign trade and tax laws, and other regulations; (l) the outcome of contingencies, including legal proceedings, government or regulatory investigations, and environmental remediation, which can expose Howmet Aerospace to substantial costs and liabilities; (m) failure to comply with government contracting regulations; (n) adverse changes in discount rates or investment returns on pension assets; and (o) the other risk factors summarized in Howmet Aerospace’s Form 10-K for the year ended December 31, 2020 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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Differences between the total segment and consolidated totals are in Corporate.