Howmet Aerospace Inc. Q4 FY2025 earnings call

Management Statement and Operational Highlights

• Financial Highlights: Q4 revenue $2.17 billion, up 15%; full year revenue up 11%. EBITDA Q4 $653 million, up 29%; full year EBITDA $2.42 billion, up 26%. Operating income Q4 $580 million, up 34%; full year operating income up 34%. Free cash flow $1.43 billion, a record, with 93% conversion of net income.
• End Markets: Commercial aerospace revenue up 13% Q4, 12% full year; defense aerospace up 20% Q4, 21% full year; gas turbine revenue up 32% Q4, 25% full year. Spares revenue combined for commercial aerospace, defense aerospace, and gas turbines up 33% full year to $1.7 billion, representing 21% of total revenue.
• Balance Sheet: Strong balance sheet with net debt to trailing EBITDA at record low of 1x. Year-end cash balance $743 million. Debt reduced by $265 million in 2025. CapEx record $453 million, 70% in Engines business.
• Capital Deployment: $200 million share buybacks, $50 million dividends, $55 million preferred share redemption, $125 million debt reduction in Q4. 2025 deployed ~$1.2 billion to common stock repurchases, etc. 2026 YTD $150 million share buybacks.
• Acquisitions: Closed purchase of Puna Inc. and agreed to $1.8 billion acquisition of Aerospace fastener and fittings business; impact on 2025 earnings not material, but positions for future growth.
• Pension: Completed annuitization of U.K. pension plan, reducing gross pension obligations by $128 million.

Segment Performance

• Engine Products: Q4 revenue was $1.16 billion, up 20%; full year revenue $4.3 billion, up 16%. Q4 EBITDA $396 million, up 31%; full year EBITDA $1.44 billion, up 25%.
• Fastening Systems: Q4 revenue $454 million, up 13%; full year revenue $1.75 billion, up 11%. Q4 EBITDA $139 million, up 25%; full year EBITDA $530 million, up 31%.
• Engineered Structures: Q4 revenue $287 million, up 4%; full year revenue $1.15 billion, up 8%. Q4 EBITDA $63 million, up 24%; full year EBITDA $243 million, up 46%.
• Forged Wheels: Q4 revenue up 9%; full year revenue down 1%. Q4 EBITDA $79 million, up 20%; full year EBITDA $296 million, up 3%.

Guidance

• Q1 2026: Revenue $2.235 billion ±$10 million; EBITDA $685 million ±$5 million; EPS $1.10 ±$0.01.
• 2026: Revenue $9.1 billion ±$100 million; EBITDA $2.76 billion ±$50 million; EPS $4.45 ±$0.01; free cash flow $1.6 billion ±$50 million. EBITDA incremental guided to early 40% range.
• Build Rates: Boeing 737 assumed 40/month, 787 7/month rising to 8/month; Airbus A320 60/month, A350 6/month.

Risks

• Dependency on Aircraft Builds: Guidance for 2026 relies on aircraft build rates, which could fluctuate.
• Capital Deployment Challenges: New capital expenditures for manufacturing plants, acquisitions, and labor recruitment may face integration or execution risks.
• Market Uncertainties: Commercial transportation market remains challenged; uncertainties in metal costs and tariffs could impact Forged Wheels segment.

Question and Answer

• **Q: Doug Harned asks about engine product growth and margin expectations.

A: John Plant discusses strong backlog in commercial aerospace, solid defense demand, and significant growth in gas turbines, noting capital expenditures and yield improvements, but cautions on predicting margin increases due to various factors.***

• **Q: Seth Seifman asks about 2026 guide implications.

A: John Plant mentions significant capital deployments, acquisitions, and new manufacturing plant builds, noting caution in guidance due to integration and execution complexities, but highlights balanced view.***

• **Q: John Godyn asks about M&A vs buybacks.

A: John Plant states capital deployment for growth opportunities is priority, with ability to do share buybacks, dividends, and M&A simultaneously due to strong cash generation and low leverage.***

• **Q: Sheila Kahyaoglu asks about M&A market openings.

A: John Plant discusses CAM acquisition expanding fittings/couplings in fasteners and Bruner acquisition enabling long-length and large-diameter bolt capabilities, opening new market segments.***

• **Q: Peter Arment asks about automation in engines.

A: John Plant mentions significant automation in recent capital expenditures, with plans for digital thread and AI in new manufacturing plants, but notes engineering bandwidth focused on meeting market demand currently.