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    HWM
    Earnings call· Dec 2024(Q4 FY24)

    Howmet Aerospace Inc. HWM

    Feb 13, 2025 Source

    Executive summary

    Howmet Aerospace Q4 FY24 — Record Performance Driven by Aerospace and IGT Demand

    Howmet Aerospace closed FY24 with record financial results, driven by strong demand in Commercial Aerospace, Defense, and Industrial Gas Turbine markets, despite headwinds in Commercial Transportation. The company exceeded its guidance across key metrics, strengthened its balance sheet, and increased capital returns to shareholders. Management anticipates continued growth in FY25, albeit with a back-end loaded profit profile and a cautious outlook on narrow-body aircraft production rates.

    Highlights

    5

    • Record Q4 adjusted EPS of $0.74, an increase of 40% over the prior year.

    • Record FY24 Free Cash Flow of $977 million, representing an 88% conversion of net income.

    • FY24 adjusted EBITDA margin increased 310 basis points to 25.8%, with a Q4 exit rate of 26.8%.

    • Net debt-to-EBITDA improved to a record low of 1.4x, leading to an S&P rating upgrade from BBB- to BBB.

    • Quarterly common stock dividend increased by 25% from $0.08 to $0.10 per share.

    Concerns

    3

    • Commercial Transportation revenue was down 12% in Q4 and 7% for the full year due to market slowdown.

    • Boeing 737 MAX production is assumed at approximately 25 aircraft per month on average for FY25, skewed towards the second half, reflecting ongoing uncertainty.

    • The full-year FY25 incremental flow-through of approximately 36% is lower than Q1's expected over 70%, reflecting a back-end loaded profit profile and cautious outlook.

    Guidance & targets

    20
    CategoryTargetConfidence
    Q1 FY25 Revenue
    $1.935 billion +/- $10 million
    high materiality
    High
    Q1 FY25 Adjusted EBITDA
    $520 million +/- $5 million
    high materiality
    High
    Q1 FY25 Adjusted EPS
    $0.76 +/- $0.01
    high materiality
    High
    Q1 FY25 Incremental Flow-through
    over 70%
    medium materiality
    High
    FY25 Revenue
    $8.03 billion +/- $100 million
    high materiality
    Medium
    FY25 Adjusted EBITDA
    $2.3 billion +/- $25 million
    high materiality
    Medium
    FY25 Adjusted EPS
    $3.17 +/- $0.04
    high materiality
    Medium
    FY25 Free Cash Flow
    $1.075 billion +/- $50 million
    high materiality
    Medium
    FY25 Incremental Flow-through
    approximately 36%
    medium materiality
    Medium
    Spares Revenue as % of Total Revenue
    growing towards 20%
    medium materiality
    Medium
    Industrial Market Growth
    mid-single digits
    low materiality
    Medium
    Commercial Truck Market Growth
    return to growth expected
    low materiality
    Low
    Boeing 737 MAX Production Rate
    about 25 aircraft per month on average
    high materiality
    Medium
    FY25 Net New Employees
    about 1,000 net heads
    low materiality
    Medium
    FY25 Working Capital Burn
    around $180 million
    medium materiality
    Medium
    FY25 Share Buyback
    will exceed the buyback of 2024
    high materiality
    High
    FY25 Debt Paydown
    muted compared to 2024
    medium materiality
    High
    GTF Advantage Certification and Changeover
    mid-2025
    high materiality
    Medium
    LEAP-1B Blade Changeover
    mid-2026
    medium materiality
    Low
    Airbus Wide-body Production Rate
    12 aircraft a month
    medium materiality
    Medium

    Segment performance

    4
    SegmentRevenueYoYQoQMargin
    Engines Products
    Delivered strong Q4 results with revenue and EBITDA growth outpacing the company average. Commercial Aerospace was up 13% and Defense Aerospace was up 19%, driven by Engine Spares. Oil and Gas was up 31% and IGT was up 5%. All FY24 metrics were records for the segment. Added significant headcount to support future growth.
    EBITDA: $302 millionEBITDA growth YoY: 30%Net new employees in Q4: 220FY24 Revenue: $3.7 billionFY24 EBITDA: $1.15 billionFY24 EBITDA margin: 30.8%FY24 Net new employees: 1,205
    		$972 million14%—31.1% EBITDA margin
    Fastening Systems
    Achieved strong Q4 performance with significant margin expansion. Commercial Aerospace was up 17% (including widebody recovery and Boeing strike impact). General Industrial was up 32%, Defense Aerospace up 2%. Commercial Transportation, representing 14% of revenue, was down 13%. The team expanded margins through commercial and operational improvements while reducing headcount.
    EBITDA: $111 millionEBITDA growth YoY: 39%FY24 Revenue: $1.6 billionFY24 EBITDA: $406 millionFY24 EBITDA margin: 25.8%FY24 Headcount reduction: 135 employees
    		$401 million11%—27.7% EBITDA margin
    Engineered Structures
    Continued to improve performance, with significant EBITDA growth and margin expansion. Commercial Aerospace was up 9% and Defense Aerospace was up 51%, primarily driven by the F-35 program. Improvements were driven by optimizing the manufacturing footprint and rationalizing product mix. Expect continued improvements in 2025.
    EBITDA: $51 millionEBITDA growth YoY: 55%FY24 Revenue: $1.1 billionFY24 EBITDA: $166 millionFY24 EBITDA margin: 15.6%FY24 Headcount reduction: 235 employees
    		$275 million13%—18.5% EBITDA margin
    Forged Wheels
    Revenue was down due to the slowdown in the commercial transportation market. Despite the revenue decline, EBITDA margin remained healthy at 27.2% for both Q4 and the full year, as the team flexed costs and expanded margins through commercial and operational performance.
    EBITDA: $287 millionEBITDA decrease YoY: 8%FY24 Revenue: $1.1 billionFY24 EBITDA: $287 millionFY24 EBITDA margin: 27.2%
    		$1.1 billion-12%—27.2% EBITDA margin

    Operational metrics

    42
    Adjusted EPS
    $0.74up 40% YoY
    Q4 FY24

    Record earnings per share for the quarter.

    Adjusted EPS
    $2.69up 46% YoY
    FY24

    Record earnings per share for the full year.

    Operating margin
    23%
    Q4 FY24

    Company-wide operating margin.

    Free Cash Flow Conversion
    approximately 100%
    Last 5 years average

    Average free cash flow conversion of net income over the last 5 years.

    Net Debt-to-EBITDA
    1.4x
    Q4 FY24

    Record low leverage ratio.

    Revenue Growth
    9%YoY
    Q4 FY24

    Company-wide revenue growth.

    Revenue Growth
    12%YoY
    FY24

    Company-wide revenue growth.

    Commercial Aerospace Revenue Growth
    13%YoY
    Q4 FY24

    Strong growth in Commercial Aerospace.

    Commercial Aerospace Revenue Growth
    20%YoY
    FY24

    Strong growth in Commercial Aerospace.

    Defense Aerospace Revenue Growth
    22%YoY
    Q4 FY24

    Accelerated growth in Defense Aerospace.

    Defense Aerospace Revenue Growth
    15%YoY
    FY24

    Growth in Defense Aerospace.

    Commercial Transportation Revenue Growth
    -12%YoY
    Q4 FY24

    Challenging market conditions.

    Commercial Transportation Revenue Growth
    -7%YoY
    FY24

    Challenging market conditions.

    Wheels Segment EBITDA Margin
    27.2%
    Q4 FY24

    Healthy margin despite challenging market.

    Wheels Segment EBITDA Margin
    27.2%
    FY24

    Healthy margin despite challenging market.

    Industrial and Other Markets Revenue Growth
    11%YoY
    Q4 FY24

    Growth driven by specific sub-markets.

    Industrial and Other Markets Revenue Growth
    9%YoY
    FY24

    Growth driven by specific sub-markets.

    Adjusted EBITDA Growth
    27%YoY
    FY24

    EBITDA growth outpaced revenue growth.

    Adjusted EBITDA Margin
    25.8%up 310 bps YoY
    FY24

    Record EBITDA margin for the full year.

    Adjusted EBITDA Margin Exit Rate
    26.8%
    Q4 FY24

    Exit rate for the fourth quarter.

    Incremental Flow-through (Revenue to EBITDA)
    approximately 50%YoY
    FY24

    Excellent incremental flow-through for the full year.

    Capital Expenditures
    $321 millionup approximately $100 million YoY
    FY24

    Record CapEx investments, primarily in the Engines business.

    Cash Balance
    $565 million
    Year-end FY24

    Healthy cash balance.

    Undrawn Revolver Capacity
    $1 billion
    Q4 FY24

    Strong liquidity.

    Commercial Paper Program
    $1 billion
    Q4 FY24

    Flexibility provided by the commercial paper program.

    Total Cash Deployed
    approximately $975 million
    FY24

    Total cash deployed for capital allocation.

    Common Stock Repurchases
    $500 million
    FY24

    Share repurchases during the year.

    Common Stock Repurchases
    $50 million
    January 2025

    Additional share repurchases in January 2025.

    Remaining Share Repurchase Authorization
    approximately $2.15 billion
    End of January

    Remaining authorization from the Board of Directors.

    Debt Reduction
    $365 million
    FY24

    Total debt reduction for the year.

    Debt Paydown
    $60 million
    Q4 FY24

    Partial paydown of term loan in Q4.

    Annualized Interest Expense Reduction
    approximately $37 million
    Annualized

    Reduced interest expense due to debt actions.

    Dividends Paid
    $109 millionincrease of 53% YoY
    FY24

    Total dividends paid for the year.

    Quarterly Common Stock Dividend
    $0.10increase of 25% from $0.08 per share
    Q1 FY25 onwards

    Increased quarterly dividend.

    Operational Tax Rate
    20.5%170 bps improvement YoY
    FY24

    Improved operational tax rate.

    Pretax Return on Net Assets
    41%improved by 800 bps from 33% in 2023
    FY24

    Improved return driven by profitability and asset optimization.

    Net New Employees
    700
    FY24

    Company-wide net new employees, with significant additions in Engines and reductions elsewhere due to productivity improvements.

    Boeing 787 Production Rate
    rate 10 and maybe more
    Future

    Expected increase in Boeing 787 build rates.

    IGT Market Share
    above 50%
    Current

    Howmet's leading market share in global IGT turbine blades.

    CFM56 Peak Demand
    pushed out to more like 2027
    Future

    Management's view on the timing of peak demand for CFM56 engines.

    LEAP-1A Blade Changeover
    occurred
    January 2025

    Transition to the new improved version of the LEAP-1A blade is complete.

    Data Center Electricity Demand
    —
    Future

    Discussed as a massive driver for IGT demand, requiring significant electricity for build-out, functioning, and cooling.

    Industry KPIs

    6
    MetricValueDetails
    Defense program awardsF-35 program
    Program segment backlogF-35 spares to exceed OE engine revenues
    Aftermarket services split$1.28 billionUSD
    Unit deliveries by program10aircraft
    Production rates by program~25 aircraft/monthaircraft/month
    Production capacity expansionAdditions to 2 sites

    Orderbook & backlog

    1
    Airbus, Boeing, and COMAC Backlogsnever been higherQ4 FY24

    Principally due to the underbuild of aircraft schedules by manufacturers.

    Capital programs

    1
    IGT Turbine Blade Capacity Expansionunderway
    Period spend: increased CapEx investment for 2025 compared to 2024

    Benefit: additional plant and equipment to be installed

    Building out additions to two sites to enable additional plant and equipment for IGT turbine blades, linked to customer contracts.

    Risks & headwinds

    6
    Commercial Transportation Market SlowdownQ4 FY24 and FY24

    Revenue down 12% in Q4, down 7% for FY24

    Mitigation: Company continued to outperform the market with premium products and maintained healthy EBITDA margins (27.2%) by flexing costs and expanding margins through commercial and operational performance.

    Uncertainty in Commercial Aerospace Narrow-body BuildsFY25

    Boeing 737 MAX assumed at ~25 aircraft per month on average for FY25, skewed towards H2

    Mitigation: Company has chosen to be conservative in its financial guide due to lack of visibility and potential for cutbacks. They are preparing to match higher rates (38 or 42) if they materialize and are building inventory to be ready.

    Supply Chain ChallengesOngoing

    Mentioned issues with seats, fuselages, sections, heat exchange

    Mitigation: Company is monitoring if these challenges are clearing up, which could enable higher aircraft build rates.

    Tariff SituationOngoing

    Closely monitoring, remains fluid

    Mitigation: Company expects to be well positioned due to strong commercial agreements and mission-critical products, with the ability to pass on additional costs to customers, as demonstrated in 2022.

    Back-end Loaded Profit Profile for FY25FY25

    FY25 profit back-end loaded

    Mitigation: Company is being cautious in its guidance until more clarity on the second half, particularly commercial aerospace narrow-body builds and commercial truck improvements, is available. They are building infrastructure to match demand in H2 and 2026.

    Potential for Instability in Demand ProfileH2 2025 into 2026

    Demand could accelerate to an even much higher rate in the balance of the year going into 2026

    Mitigation: Company has taken account of this potential instability and has baked current expectations into the Q1 guide. They are preparing for potential rapid acceleration in demand.

    What to watch in Q1 FY25

    5

    Boeing 737 MAX Production Rate

    Next quarter / H2 FY25
    Current~25 aircraft/month average for FY25, skewed to H2
    TargetHigher rates (e.g., 38 or 42 aircraft/month)

    Why it matters

    The actual production rate of the 737 MAX will significantly impact Howmet's Commercial Aerospace revenue and overall profitability, especially given its back-end loaded⚖️ FY25 guidance.

    The full year incrementals are healthy at approximately 36% in the guide while we await more clarity on the second half and in particular, the commercial aerospace narrow-body builds.

    Q&A highlights

    7

    Are the Q4 Fastening Systems EBITDA margins (28%) sustainable, or was there anything unusual? What's the path for future margin improvement?

    Management confirmed the strong performance is sustainable, driven by operational and productivity improvements, and commercial discipline. While the rate of increase may slow, they don't believe they're finished. Wide-body mix improvements (A350, 787) are expected to provide further benefit in 2025 and beyond, especially with projected rate increases for Boeing 787 and Airbus wide-body.

    “I don't think that we're finished yet.”

    asked by Doug Harned · answered by John Plant

    2 min read5 chapters

    Detailed Narrative

    01

    Market Outperformance and Growth Drivers

    Howmet Aerospace continued its trend of outgrowing its respective markets in 2024 and expects to do so again in 2025. This performance is primarily driven by robust demand in Commercial Aerospace, Defense Aerospace, and Industrial markets, particularly Industrial Gas Turbines (IGT). The company's strategic investments and operational improvements have enabled it to capitalize on these growth areas, despite facing challenges in the Commercial Transportation sector.

    02

    Industrial Gas Turbine (IGT) Opportunity

    Management expressed significant optimism regarding the future of the IGT market, citing the massive electricity demands from data centers globally. This demand is expected to drive increased utilization of existing turbines, leading to higher spares requirements, and a projected increase in new turbine builds from 2025 to 2027 and beyond. Howmet, as a global leader in IGT turbine blades with over 50% market share, is investing in capacity expansion at two sites to meet this anticipated growth, linking these CapEx investments to customer contracts.

    03

    Aerospace Production Dynamics and Engine Transitions

    The company's FY25 guidance incorporates a cautious assumption for Boeing 737 MAX production at an average of ~25 aircraft per month, skewed to the second half, acknowledging potential for higher rates if supply chain issues resolve. The LEAP-1A blade changeover was successfully completed in January 2025, resolving Q4 margin disturbances. The GTF Advantage certification and changeover are anticipated by mid-2025, while the LEAP-1B changeover is expected around mid-2026, both representing opportunities for increased content and improved durability.

    04

    Capital Allocation Strategy

    Howmet maintains a strong balance sheet with a record low net debt-to-EBITDA of 1.4x and investment-grade credit ratings. The company increased its quarterly dividend by 25% to $0.10 per share. For FY25, share repurchases are expected to exceed the $500 million executed in FY24, while debt paydown will be muted compared to the $365 million in FY24. This strategy aims to largely repatriate free cash flow to shareholders, providing both returns and financial flexibility.

    05

    Productivity and Margin Expansion

    Company-wide productivity improvements and strategic CapEx investments contributed to an excellent 50% incremental flow-through of revenue to EBITDA in FY24. The Fastening Systems segment achieved a healthy 27.7% EBITDA margin in Q4, driven by commercial discipline and operational improvements. Engineered Structures also showed significant progress, increasing its EBITDA margin to 18.5% in Q4 through product rationalization, facility closures, and enhanced productivity, with expectations for continued improvement in FY25.

    AI-generated summary of the company’s earnings call. Not investment advice.