Howmet Aerospace Inc. Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Financial Results: Second quarter revenue $2.53 billion, up 9% year-over-year; EBITDA $589 million, margin 28.7% (up 300 basis points); EPS $0.91, up 36% year-over-year. Free cash flow $344 million; repurchased $400 million in common stock in first half; increased common stock dividend to $0.12 per quarter starting August.
• Segment Commentary: Forged Wheels continued at 27.5% margin; Structure EBITDA margin 21.4%; Howmet incrementals over 60% year-over-year.
• Market Performance: Commercial aerospace up 8% driven by engine spares demand; Defense aerospace up 21% with record quarterly revenue; Commercial transportation down 4% due to higher aluminum costs; Industrial and other markets up 17% led by oil and gas (up 26%) and IGT (up 25%).
• Balance Sheet and Cash Flow: Cash balance $546 million at quarter-end; debt repayment $76 million; net debt to trailing EBITDA at record low 1.3x.

Segment Performance

• Forged Wheels: Revenue slightly down despite higher aluminum costs; excluding metal impacts, volume down 11%; Wheels team flexed costs to hold EBITDA at prior year levels, EBITDA margin 27.5%.
• Structure: Revenue increased 5% to $290 million; Commercial aerospace down 6% due to destocking, Defense Aerospace up 49% primarily driven by end of F-35 program destocking; EBITDA margin increased 690 basis points to 21.4% as they optimized manufacturing footprint and rationalized product mix.
• Howmet incrementals: Above 60% year-over-year.
• Engine Products: Quarterly revenue broke $1 billion, up 13% to $1.056 billion; Commercial aerospace up 9%, defense aerospace up 13%, oil and gas and IGT up ~25%; EBITDA margin 33%, up 170 basis points year-over-year.
• Fastening Systems: Revenue increased 9% to $431 million; Commercial aerospace up 18%, defense aerospace up 19%; EBITDA margin 29.2%, up 360 basis points year-over-year after accounting for tariff recovery impact.

Guidance

• Q3 Guidance: Revenue $2.03 billion ±$10 million, EBITDA $580 million ±$5 million, EPS $0.90 ±$0.01.
• Full Year Guidance: Revenue increased to $8.13 billion ±$50 million, EBITDA to $2.32 billion ±$20 million, EPS to $3.60 ±$0.04, Free cash flow to $1.225 billion ±$50 million. Increased due to higher spares expectation and higher Boeing 737 MAX rate assumption; free cash flow guidance includes benefits from new tax legislation.

Risks

• Commercial Truck Market: Uncertainty around emissions requirements and volume security for commercial trucks.
• Tariff Drag: Impact on Fastening Systems, though expecting recovery as timing of costs and customer compensation improve.
• Supply Chain Bottlenecks: Potential issues in engine production and part availability affecting aircraft ramp-ups, particularly with engine supply for A320 builds.

Question and Answer

• Q: Rationalization of products within structures. How meaningful is that? Is it going to be to the margins as well as maybe any headwind to departing from some lines of businesses or products? A: The majority of rationalization already occurred; sale of one business and closure of a European manufacturing plant, enabling improved margins with healthy revenue growth. No significant further rationalizations expected but remain alert for non-contributing areas.
• Q: Timing of revenue contributions from engine expansions A: Michigan plant outputs in Q4 2025; Japan and Europe plants coming online in 2026-2027, with output expected in second half of 2026 and full bore in 2027.
• Q: Defense F-35 contribution A: Spares business for F-35 engine products exceeds OE production; Bulkheads division from structures running at 1:1 with Lockheed production, expecting solid rates through end of decade.
• Q: Tariff drag in Q2 A: Tariff drag below $5 million in Q2, due to timing of costs and customer compensation offsetting the impact.
• Q: Industrial growth and IGT margins A: IGT margins comparable to commercial aero; agreements in place with major players, growth expected in 2026-2027 with increased capacity coming online.