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Why Is Howmet (HWM) Up 0.8% Since Last Earnings Report?

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A month has gone by since the last earnings report for Howmet (HWM - Free Report) . Shares have added about 0.8% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Howmet due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Howmet Aerospace Q2 Earnings Meet Estimates, Rise Y/Y

Howmet Aerospace delivered mixed results for second-quarter 2021. Its earnings were in line with the Zacks Consensus Estimate, while sales lagged the same by 1%.

Earnings, excluding special items, were 22 cents per share for the reported quarter, in line with the Zacks Consensus Estimate of 22 cents. On a year-over-year basis, earnings increased 83.3% from the year-ago quarter’s 12 cents per share as lower costs and expenses helped offset the decline in revenues.

On a sequential basis, the company’s bottom line has been unchanged.

Revenue Details

In the quarter under review, Howmet Aerospace’s net sales were $1,195 million, reflecting a 4.6% decrease from the year-ago quarter. The pandemic as well as production declines of Boeing 787 adversely impacted the company’s businesses in the commercial aerospace market. However, business growth in the industrial and commercial transportation markets was a relief.

The company’s top line lagged the Zacks Consensus Estimate of $1,207 million.

On a sequential basis, the company’s revenues decreased 1.2%.

Howmet Aerospace reports revenues under four segments. A brief discussion on the quarterly results is provided below.

Engine Products’ revenues totaled $544 million, representing 45.5% of net revenues in the quarter under review. On a year-over-year basis, the segment’s revenues decreased 7% due to weakness in the commercial aerospace market, offset by strength in the industrial gas turbine market.

The Fastening Systems segment generated revenues of $262 million, accounting for 21.9% of net revenues in the reported quarter. Revenues declined 19.6% year over year on the back of poor performance in the commercial aerospace market, partially offset by gains in the industrial and commercial transportation markets.

The Engineered Structures segment’s revenues, representing 13.4% of net revenues, decreased 30.1% year over year to $160 million. Commercial aerospace adversely impacted results in the reported quarter.

Forged Wheels revenues totaled $229 million, representing 19.2% of net revenues in the quarter under review. On a year-over-year basis, the segment’s revenues increased 102.7%, driven by growth in the commercial transportation market.

Margin Profile

In the reported quarter, Howmet Aerospace’s cost of goods sold decreased 7.2% year over year to $857 million. It represented 71.7% of the reported quarter’s net sales versus 73.7% in the year-ago quarter.

Selling, general, administrative, and other expenses decreased 25.7% year over year to $55 million. It represented 4.6% of net sales in the reported quarter versus 5.9% in the year-ago quarter. Research and development expenses were $4 million in the quarter, unchanged from the year-ago quarter.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), excluding special items, in the reported quarter were $272 million and adjusted EBITDA margin was 22.8%. Operating profits (excluding special items) increased 13.9% year over year to $205 million, whereas margin grew 280 basis points (bps) to 17.2%.

Interest expenses in the quarter totaled $89 million, down 38.2% from the year-ago quarter. Adjusted tax rate in the reported quarter was 26.7%.

Balance Sheet & Cash Flow

Exiting the second quarter of 2021, Howmet Aerospace had cash and cash equivalents of $715 million, decreasing 42.2% from $1,238 million recorded in the last reported quarter. Long-term debt was $4,227 million, up 0.1% from $4,224 million at the end of first-quarter 2021. In the first half, the company repaid debts worth $838 million.

In the first half of 2021, Howmet Aerospace generated net cash of $79 million from its operating activities against $177 million used in the year-ago period. Capital spending totaled $91 million versus $184 million in the second half of 2020. Adjusted free cash flow in the first half of 2021 was $160 million.

The company paid out dividends of $1 million in the first half of 2021, as compared with $10 million distributed in the year-ago period. Also, it repurchased 5.9 million shares for $200 million in the first six months of 2021.


For 2021, the company updated its revenue projection from $5.05-$5.20 billion to $5.05-$5.15 billion. The mid-point is kept unchanged at $5.1 billion. Earnings (excluding special items) are expected to be 95 cents to $1.02, higher than 91 cents to $1.02 mentioned earlier. Notably, the mid-point now stands at 99 cents, up from the previously stated 95 cents.

Adjusted EBITDA is expected to be $1.145-$1.185 billion for the year, as compared with the previously stated $1.125-$1.20 billion. The mid-point has increased from $1.15 billion to $1.17 billion. EBITDA margin projection at 22.9% represents a 40-bps increase from the previously mentioned number. Adjusted free cash flow is predicted to be $415-$485 million, with a mid-point of $450 million. The earlier guidance was $390-$460 million, with $425 million as the mid-point.

For the third quarter, the company anticipates revenues of $1.28-$1.32 billion, with the mid-point of $1.3 billion. Earnings (excluding special items) are expected to be 23-27 cents (the mid-point being 25 cents), while adjusted EBITDA is predicted to be $285-$305 million (the mid-point being $295 million).

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions.

VGM Scores

Currently, Howmet has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.


Howmet has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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