Q4 2024 Earnings Summary
- Howmet Aerospace anticipates significant growth in the Industrial Gas Turbine (IGT) market due to increasing electricity demand from data centers. As the global leader in turbine blades with over 50% global market share, Howmet is well-positioned to benefit. The company is investing in capacity expansion, which could lead to substantial revenue and margin growth in the coming years.
- The Fastening Systems segment has shown strong margin improvements due to operational productivity enhancements and commercial discipline, with EBITDA margin increasing to 27.7% in Q4. There is potential for further margin expansion as wide-body aircraft production increases, benefiting from anticipated higher build rates of aircraft like the Boeing 787 and Airbus wide-body models.
- Strong and increasing demand for aerospace engine spares, particularly for LEAP and CFM56 engines, is expected to continue. Spares revenue increased approximately 25% in 2024 to $1.28 billion and is anticipated to grow further in 2025, positively impacting Howmet's revenue and margins. The peak demand for CFM56 spares has been pushed out to around 2027, due to airlines working existing fleets harder, leading to increased spares demand.
- Guidance implies a potential decrease in margins and profits beyond Q1 due to uncertainties in production rates and supply chain issues.
- Decrease in Engines margins in Q4 may indicate pressure on margins in the Engines segment, possibly due to changeover costs that may recur in future transitions.
- Prioritization of spares over OE engine builds may reduce revenue from original equipment parts, potentially impacting sales of structural castings and other components.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | Increased 9% from $1,731 million in Q4 2023 to $1,891 million in Q4 2024 | Higher volumes and improved pricing strategies drove revenue growth, building on earlier period gains seen in Q3. The continued strength in key markets such as commercial aerospace and industrial segments, which had supported Q3 improvements, carried over to Q4, leading to the 9% increase. |
Operating Income | Increased 37% from $326 million in Q4 2023 to $445 million in Q4 2024 | Operational efficiencies and enhanced cost management combined with increased sales volumes led to a 37% jump in operating income. This improvement, which extends Q3 learnings around tighter COGS control and favorable product pricing, underpinned the significant margin expansion seen in Q4. |
Net Income | Increased 33% from $236 million in Q4 2023 to $314 million in Q4 2024 | Improved profitability was driven by the broader base of operating income gains and cost reductions observed in prior quarters. The continued elimination of non-recurring charges and improved pricing further contributed to the 33% increase in net income. |
Basic EPS | Increased 35% from $0.57 in Q4 2023 to $0.77 in Q4 2024 | EPS benefits came from both the increase in net income and the reduction in share count through share repurchases—a trend consistent with previous periods. These drivers, which amplified the EPS growth previously noted, resulted in a 35% increase. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Revenue | Q4 2024 | $1.87 billion, ±$20 million | no current guidance | no current guidance |
EBITDA | Q4 2024 | $488 million, ±$10 million | no current guidance | no current guidance |
EPS | Q4 2024 | $0.71, ±$0.01 | no current guidance | no current guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Revenue | Q4 2024 | $1.87B ± $20M | $1.891B | Beat |
EBITDA | Q4 2024 | $488M ± $10M | $518M (calculated by adding Q4 EBIT of 445And D&A of 73) | Beat |
EPS | Q4 2024 | $0.71 ± $0.01 | $0.77 | Beat |
Revenue | FY 2024 | $7.41B ± $20M | $7.43B (sum of Q1: 1,824+ Q2: 1,880+ Q3: 1,835+ Q4: 1,891) | Beat |
EBITDA | FY 2024 | $1.895B ± $10M | $1.910B (sum of EBIT + D&A from Q1: (369+67), Q2: (398+69), Q3: (421+68), Q4: (445+73)) | Beat |
EPS | FY 2024 | $2.66 ± $0.01 | ~ $2.81 (sum of Q1: 0.59+ Q2: 0.64+ Q3: 0.81+ Q4: 0.77) | Beat |
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Capital Allocation Strategy
Q: Will you repatriate free cash flow via buybacks and dividends?
A: Yes, we expect to return nearly all free cash flow to shareholders through increased share buybacks and dividends in 2025, as our debt is now in great shape. -
Spares Demand Outlook
Q: What's the outlook for spares demand, especially CFM56 and LEAP engines?
A: We anticipate a very healthy increase in spares demand in 2025. The peak demand for CFM56 spares has shifted from 2025 to 2027 or later due to airlines operating existing fleets harder. Moreover, LEAP-1B spares demand is expected to accelerate in 2025, bolstering our growth. -
Conservative Guidance
Q: Why does guidance imply margin step-down after Q1?
A: We chose to be conservative due to lack of visibility and potential cutbacks, despite possible growth from additional narrow-body builds. We prefer not to get ahead of ourselves before market uncertainties resolve. -
Industrial Gas Turbines Opportunity
Q: Can you elaborate on the industrial gas turbine (IGT) opportunity?
A: The outlook for IGT is exceptional. Data centers' massive electricity needs are driving demand for onsite gas turbines. We're optimistic, with plans to invest in expanding capacity, reinforcing our over 50% global market share in turbine blades. -
Engine Margins and Changeovers
Q: Why did Engine margins decline in Q4, and what's the outlook?
A: The Q4 margin dip was due to one-time changeover costs associated with the LEAP 1A turbine blade transition. This issue is now behind us, and we don't expect these costs to recur in 2025. Overall, it's normal quarterly noise, and we're positive about margin improvements going forward. -
Engineered Structures Margin Improvements
Q: What's driving margin improvements in Engineered Structures, and is it sustainable?
A: Margin improvements to 18% EBITDA were driven by closing underperforming facilities and boosting productivity. We're optimistic about maintaining and even building on these gains in 2025, potentially moving into the high teens. -
737 Production and Inventory Levels
Q: Any clarity on 737 production forecasts and inventory?
A: We've accounted for Boeing's Q4 requirements and inventory adjustments in our Q1 guidance. While demand may accelerate later in the year, we've considered potential instability in demand profiles, and we're prepared accordingly. -
Headcount Growth for Capacity Expansion
Q: What's the planned headcount growth to match capacity expansion?
A: We anticipate adding about 1,000 net employees in 2025, slightly fewer than in 2024, aligning with our productivity improvements and expansion plans. -
Fastening Systems Margins Outlook
Q: Are higher margins in Fastening Systems sustainable?
A: Our Fastening Systems are on a strong trajectory, with productivity improvements and commercial discipline enhancing margins. While wide-body mix hasn't significantly shifted yet, we expect positive developments as builds increase in 2025 and beyond.