Howmet Aerospace(HWM) - 2022 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Revenue for Q4 2022 was $1.51 billion, up 18% year-over-year, and up 14% for the full year [20][2] - EBITDA for Q4 was $336 million, marking the sixth consecutive quarter of sequential improvement [9][20] - Earnings per share (EPS) for the year was $1.40, up 39% year-over-year [14][29] - Free cash flow for the year reached a record $540 million, with a conversion rate of 91% [21][26] - The net debt to EBITDA ratio improved to 2.6 times, down from 3.1 times [11][50] Business Line Data and Key Metrics Changes - Commercial aerospace revenue was up 29% year-over-year in Q4 and up 28% for the full year, driven by engine products and engineered structures [2][40] - Commercial transportation revenue increased by 12% year-over-year in Q4 and 14% for the full year, influenced by higher aluminum prices [24] - The industrial and other markets were flat for Q4 and the year, with oil and gas up 22% and general industrial down 10% [13] Market Data and Key Metrics Changes - Commercial aerospace now accounts for 48% of total revenue, still below the pre-COVID level of 60% [32] - Defense aerospace revenue was up 13% in Q4 but down 3% for the full year due to inventory corrections [32] Company Strategy and Development Direction - The company aims to maintain a cautious outlook for 2023, anticipating a 17% growth in commercial aerospace, while acknowledging potential volatility in aircraft build rates [43][75] - The focus remains on improving operational efficiency and managing inflationary costs, with expectations to pass through most inflationary impacts [47][75] - The company is positioned to benefit from increased demand for next-generation fighter programs and upgrades in engine technology [161] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the recovery in commercial aerospace, citing strong backlogs at Boeing and Airbus [41] - The company plans to navigate potential challenges in 2023 with a conservative approach, while expecting strong demand to drive growth in subsequent years [75][75] - Inflationary pressures are anticipated to be in the range of $70 million to $100 million for the year, with a strategy to mitigate these costs [47] Other Important Information - The company has a healthy liquidity position with a cash balance of $792 million and an undrawn $1 billion revolver [4][74] - Capital expenditures for the year were $193 million, approximately 75% of depreciation [35] Q&A Session Summary Question: What is the outlook for OEM build rates? - Management noted that steady build rates are beneficial for operational efficiency and margin improvement, contrasting with the volatility experienced in 2022 [80] Question: How does the guidance align with operations? - Management confirmed that recruitment efforts have been effective, allowing the company to meet operational needs despite some labor stability issues [65] Question: What is the expected impact of inflation on profitability? - Management indicated that inflation recovery is expected, with a cautious approach to guidance reflecting potential challenges [115] Question: How is the health of the supply chain? - Management reported improvements in base metal procurement but noted challenges with alloy metals, which affected throughput stability [135]