Q1 2024 Earnings Summary
- Howmet's fasteners business has seen significant growth, with the distribution segment doubling in the last three years and improving margins.
- Spares revenue is expected to increase by over $120 million, reflecting a 25% year-over-year lift, with spares revenues now above $1.1 billion, substantially exceeding 2019 levels.
- Despite challenges with Boeing 737 MAX production, Howmet anticipates an overall increase in revenue guidance for 2024, offsetting potential impacts with increased sales in defense, wheels, oil and gas, and industrial gas turbines.
- Howmet Aerospace is facing significant uncertainty due to Boeing's production issues with the 737 MAX, leading to a reduction in Howmet's production rate assumptions from 34 to 20 aircraft per month for the year, which may negatively impact revenues. ,
- The Forged Wheels segment is expected to experience weakness in the second half of the year, which could negatively affect margins and profitability, as the company is planning for a reduction in commercial truck build rates by about 10% in North America and higher in Europe. ,
- Increased capital expenditures are planned to expand capacity, particularly in the Engines business, with investments approaching $300 million in 2024 and anticipated elevated spending in 2025, which may pressure free cash flow and increase financial risk.
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Boeing 737 MAX Production Impact
Q: What's the outlook for 737 MAX production and its impact?
A: While Boeing initially scheduled a production rate of 38 for the 737 MAX, actual builds were well below 20%. Boeing is now trimming requirements, and we're cautious, assuming production rates may be reduced to around 20 per month instead of 38. This reduction could impact us by over $100 million in revenue. -
Aftermarket Spares Growth
Q: How is the spares business contributing to growth?
A: We're expecting over $120 million in increased spares revenue, reflecting a 25% lift year-on-year, and 35% in commercial aerospace spares. Spares revenues are now substantially above 2019 levels, moving from about $800 million to over $1.1 billion. -
Margin Improvement and Outlook
Q: Can margins surpass prior peaks, and what is the outlook?
A: We achieved over 500 basis points in margin improvement year-over-year and 200 basis points sequentially. While margins are improving, we're cautious about surpassing 2019 levels due to lower production rates on key programs like the 787. -
CapEx Plans for Production Ramp
Q: How are you planning CapEx for the production ramp-up?
A: We're increasing CapEx from just over $200 million last year to around $300 million this year. Elevated investment will continue into 2025, with total additional investment getting close to $200 million to support the production ramp-up. -
Boeing 787 Production Outlook
Q: What's the outlook for 787 production and its impact?
A: We've reduced our 787 production assumption from 6 to 5 aircraft per month. While Boeing faces supply constraints, we're continuing to produce at higher rates to meet future demand. -
CEO's Future Plans
Q: What are your future plans at the company?
A: I have no specific plans to announce at this time. I've always aimed to see Howmet through the aerospace recovery, and will inform you if that changes. -
Fasteners Business Performance
Q: Are margins in Fasteners expected to surpass prior peaks?
A: Our fasteners distribution business is growing rapidly, nearly doubling in the last three years. While margins are improving, we're cautious about reaching prior peak levels due to different market conditions compared to 2019. -
Commercial Wheels Slowdown
Q: How will the expected slowdown in commercial wheels affect you?
A: We're anticipating a slowdown in our commercial wheels business in the second half, expecting around a 10% reduction in North American truck builds and higher in Europe. We remain cautious and are adjusting our plans accordingly.
Research analysts covering Howmet Aerospace.