Howmet Aerospace(HWM) - 2025 Q2 - Quarterly Report

Part I - Financial Information Financial Statements and Supplementary Data The company achieved significant financial growth in Q2 and H1 2025, driven by strong aerospace sales, increased net income, and improved cash from operations Consolidated Operations Highlights (Q2 & YTD 2025 vs 2024) | Metric | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :--- | :--- | :--- | :--- | :--- | | Sales | $2,053M | $1,880M | $3,995M | $3,704M | | Operating Income | $521M | $398M | $1,015M | $767M | | Net Income | $407M | $266M | $751M | $509M | | Diluted EPS | $1.00 | $0.65 | $1.84 | $1.23 | Consolidated Balance Sheet Summary (as of June 30, 2025) | Account | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Total Current Assets | $3,694M | $3,362M | | Total Assets | $11,046M | $10,519M | | Total Current Liabilities | $1,600M | $1,549M | | Total Liabilities | $6,004M | $5,965M | | Total Equity | $5,042M | $4,554M | Consolidated Cash Flow Summary (Six Months Ended June 30) | Cash Flow Activity | 2025 | 2024 | | :--- | :--- | :--- | | Cash from Operations | $699M | $574M | | Cash used for Financing | ($506M) | ($301M) | | Cash used for Investing | ($212M) | ($129M) | | Net Change in Cash | ($19M) | $142M | Note A: Basis of Presentation Financial statements adhere to GAAP, with aerospace markets contributing 69% of H1 2025 revenue, and future growth tied to OEM production rates and trade policies - In the first six months of 2025, approximately 69% of revenue was derived from the commercial and defense aerospace markets[25] - The company anticipates continued growth in aerospace demand, supported by record aircraft backlogs and increasing production rates at Boeing and Airbus[25] - The FAA has capped Boeing's 737 MAX production rate increases at 38 aircraft per month until quality control procedures are deemed satisfactory, which could impact Howmet's financial performance[25] Note C: Segment Information The company's four segments generated $4.0 billion in sales and $1.19 billion in Adjusted EBITDA in H1 2025, with Engine Products leading and aerospace markets contributing 69% of revenue Segment Performance (Six Months Ended June 30, 2025) | Segment | Third-Party Sales | Segment Adjusted EBITDA | | :--- | :--- | :--- | | Engine Products | $2,052M | $674M | | Fastening Systems | $843M | $253M | | Engineered Structures | $572M | $122M | | Forged Wheels | $528M | $144M | | Total Segment | $3,995M | $1,193M | Revenue by End Market (Six Months Ended June 30, 2025) | End Market | Revenue | | :--- | :--- | | Aerospace - Commercial | $2,076M | | Aerospace - Defense | $685M | | Commercial Transportation | $637M | | Industrial and Other | $597M | - RTX Corporation and GE Aerospace were the company's largest customers, representing approximately 11% and 10% of third-party sales, respectively, for the first six months of 2025[42] Note H: Earnings Per Share and Common Stock H1 2025 diluted EPS was $1.84, supported by $300 million in share repurchases and a doubled Q2 dividend, with $1.8 billion remaining for future repurchases Share Repurchases (YTD June 30) | Period | Shares Repurchased | Average Price | Total Cost | | :--- | :--- | :--- | :--- | | 2025 | 2,235,415 | $134.20 | $300M | | 2024 | 2,977,996 | $70.52 | $210M | - Common stock dividends declared and paid were $0.10 per share in Q2 2025, an increase from $0.05 per share in Q2 2024[63] - The share repurchase program has approximately $1.8 billion in remaining authorization as of July 31, 2025, following an additional $100 million repurchase in July 2025[61] Note N: Debt Total long-term debt decreased to $3.25 billion by June 30, 2025, supported by a $75 million prepayment and an undrawn $1 billion revolving credit facility Total Long-Term Debt | Date | Amount | | :--- | :--- | | June 30, 2025 | $3,253M | | December 31, 2024 | $3,309M | - On June 11, 2025, the company completed an early partial prepayment of its USD Term Loan Facility in the amount of $75 million[76] - The company has a $1 billion senior unsecured revolving credit facility maturing in 2028, which was undrawn as of June 30, 2025[78][79] Note P: Contingencies, Commitments and Other Liabilities The company manages environmental remediation with a $16 million reserve, is indemnified for Grenfell Tower liabilities, and holds various financial commitments including $84 million in letters of credit - The company's environmental remediation reserve was $16 million as of June 30, 2025, down from $19 million at year-end 2024[88] - Howmet is indemnified by Arconic Corporation for all potential liabilities related to the Grenfell Tower fire, with personal injury claims settled but other legal proceedings ongoing[92][93] - As of June 30, 2025, the company had outstanding letters of credit totaling $84 million and surety bonds of $45 million, primarily for workers' compensation, environmental, and tax matters[99][101] Management's Discussion and Analysis of Financial Condition and Results of Operations Strong H1 2025 performance, with Q2 sales up 9% and net income up 53%, was driven by aerospace growth, improved profitability, and strategic capital allocation, though commercial transportation demand is expected to decline - Q2 2025 sales increased 9% YoY to $2,053 million, driven by growth in commercial aerospace, defense aerospace, and industrial markets, along with favorable pricing[110] - Cost of goods sold (COGS) as a percentage of sales decreased from 68.5% to 66.5% in Q2 2025 YoY, attributed to higher volumes, favorable pricing, and productivity gains[111] - Interest expense decreased 22% in Q2 2025 YoY due to early debt redemptions and prepayments[115] - The company anticipates its full-year 2025 effective tax rate before discrete items to be between 20.5% and 21.5%[119] Segment Performance Analysis Aerospace segments (Engine Products, Fastening Systems, Engineered Structures) demonstrated strong Q2 sales and EBITDA growth, while Forged Wheels faced a slight sales decline due to commercial transportation weakness Segment Performance Highlights (Q2 2025 vs Q2 2024) | Segment | Sales Growth | Adj. EBITDA Growth | Adj. EBITDA Margin 2025 | Adj. EBITDA Margin 2024 | | :--- | :--- | :--- | :--- | :--- | | Engine Products | +13% | +20% | 33.0% | 31.3% | | Fastening Systems | +9% | +25% | 29.2% | 25.6% | | Engineered Structures | +5% | +55% | 21.4% | 14.5% | | Forged Wheels | -1% | +1% | 27.5% | 27.0% | Liquidity and Capital Resources The company maintains a strong liquidity position with H1 2025 operating cash flow up 22% to $699 million, supported by investment-grade credit ratings and sufficient capital resources - Cash provided from operations increased by $125 million (22%) to $699 million in the first six months of 2025, primarily due to higher operating results[156] - Financing activities in the first half of 2025 included $300 million in share repurchases, $83 million in dividends, and $77 million in debt repayments[158][17] Credit Ratings | Agency | Short-Term | Long-Term | Outlook | | :--- | :--- | :--- | :--- | | S&P Global Ratings | A-2 | BBB | Stable | | Moody's | P-2 | Baa1 | Stable | | Fitch Ratings | F1 | BBB+ | Stable | Quantitative and Qualitative Disclosures About Market Risk No material quantitative or qualitative disclosures regarding market risk are reported for the current period Controls and Procedures The CEO and CFO confirmed the effectiveness of disclosure controls and procedures as of June 30, 2025, with no material changes to internal control over financial reporting in Q2 2025 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[172] - No changes in internal control over financial reporting occurred during Q2 2025 that materially affected, or are reasonably likely to materially affect, the company's internal controls[172] Part II - Other Information Legal Proceedings Information concerning legal proceedings is detailed in Note P of the Consolidated Financial Statements - Details on legal proceedings are provided in Note P to the Consolidated Financial Statements[173] Risk Factors No material changes to the risk factors previously disclosed in the 2024 Annual Report on Form 10-K were reported - No material changes from the risk factors disclosed in the 2024 Form 10-K were reported[174] Unregistered Sales of Equity Securities and Use of Proceeds In Q2 2025, the company repurchased 1.23 million shares for $175 million, with approximately $1.8 billion remaining in the share repurchase authorization as of July 31, 2025 Common Stock Repurchases (Q2 2025) | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | April 2025 | 796,117 | $125.61 | | May 2025 | 44,183 | $169.74 | | June 2025 | 389,013 | $173.52 | | Total for Q2 | 1,229,313 | $142.36 | - The share repurchase program has approximately $1,797 million in authorization remaining as of July 31, 2025[175] Exhibits This section lists filed exhibits, including a letter agreement, an amended cash incentive plan, Sarbanes-Oxley certifications, and Inline XBRL data files - Key exhibits filed include a Letter Agreement with John C. Plant, the Howmet Aerospace Inc. 2020 Annual Cash Incentive Plan, and Sarbanes-Oxley Act certifications (Sections 302 and 906)[177]