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Howmet (HWM) Down 2.4% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Howmet (HWM - Free Report) . Shares have lost about 2.4% in that time frame, outperforming the S&P 500.

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

Howmet Q1 Earnings & Revenues Surpass Estimates, Up Y/Y

Howmet Aerospace Inc. has reported better-than-expected first-quarter 2022 results. The company’s earnings surpassed the Zacks Consensus Estimate by 6.9% and sales beat the same by 1.9%.

Earnings, excluding special items, were 31 cents per share in the reported quarter, surpassing the Zacks Consensus Estimate of 29 cents. Earnings increased 40.9% from the year-ago quarter’s 22 cents per share, driven by an increase in revenues. Quarterly earnings exceeded the company’s projection of 28-30 cents.

On a sequential basis, Howmet’s bottom line increased 3.3% from 30 cents.

Revenue Details

In the quarter under review, Howmet’s net sales were $1,324 million, reflecting a 9.5% increase from the year-ago quarter. The increase was backed by an improvement in the commercial aerospace and commercial transportation markets and its pricing actions. Weakness in the defense aerospace market was a spoilsport.

Howmet’s top line beat the Zacks Consensus Estimate of $1,300 million and the company’s projection of $1.28-$1.32 billion. On a sequential basis, HWM’s revenues increased 3%.

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

Engine Products’ revenues totaled $631 million, representing 47.7% of net revenues in the quarter under review. On a year-over-year basis, the segment’s revenues increased 18%, driven by strength in the commercial aerospace and industrial gas turbine markets, partially offset by softness in the defense aerospace market.

The Fastening Systems segment generated revenues of $264 million, accounting for 19.9% of net revenues in the reported quarter. Revenues declined 3% year over year due to poor performance in the defense aerospace market, partially offset by gains in the commercial transportation market.

The Engineered Structures segment’s revenues, representing 13.7% of net revenues, increased 3% year over year to $182 million. The results benefited from gains in the commercial aerospace market, partially offset by weakness in the defense aerospace market.

Forged Wheels revenues totaled $247 million, representing 18.7% of net revenues in the quarter under review. On a year-over-year basis, the segment’s revenues increased 9%, driven by the company’s effective pricing actions, partially offset by a decline in volumes owing to supply chain issues.

Margin Profile

In the reported quarter, Howmet’s cost of goods sold increased 8.8% year over year to $950 million. It represented 71.8% of the reported quarter’s net sales compared with 72.2% in the year-ago quarter.

Selling, general, administrative, and other expenses increased 6.2% year over year to $69 million. It represented 5.2% of net sales in the reported quarter compared with 5.4% in the year-ago quarter. Research and development expenses were $7 million in the quarter.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), excluding special items, in the reported quarter were $300 million, and adjusted EBITDA margin was 22.7%. Operating profits increased 21.7% year over year to $230 million, whereas margin grew 180 basis points to 17.4%.

Net interest expenses in the quarter totaled $58 million, down 19.4% from the year-ago quarter. The adjusted tax rate in the reported quarter was 24.6%.

Balance Sheet and Cash Flow

Exiting the first quarter of 2022, Howmet had cash and cash equivalents of $520 million, decreasing 27.8% from $720 million recorded in the last reported quarter. Long-term debt was $4,228 million, marginally up from $4,227 million at the end of the last reported quarter.

In the first quarter, Howmet generated net cash of $55 million from its operating activities against $6 million used in the year-ago period. Capital spending totaled $62 million compared with $55 million a year ago. Free cash outflow was $7 million in the quarter.

The company paid out dividends of $9 million in the first three months compared with $1 million in the year-ago period. Also, it repurchased shares worth $175 million in the first three months versus no repurchase made a year ago.

Outlook

For 2022, the company anticipates revenues of $5.56-$5.72 billion. The mid-point is currently pegged at $5.64 billion. Earnings (excluding special items) are expected to be $1.33-$1.45, with the mid-point at $1.39.

Adjusted EBITDA is expected to be $1.265-$1.335 billion for the year, with the mid-point of $1.3 billion. The EBITDA margin is projected at 22.8-23.3%, the midpoint being 23%. Free cash flow is predicted to be $575-$675 million, with a mid-point of $625 million.

For the second quarter, the company anticipates revenues of $1.35-$1.39 billion, with a mid-point of $1.37 billion. Earnings (excluding special items) are expected to be 31-33 cents (the mid-point being 32 cents), while adjusted EBITDA is predicted to be $302-$318 million (the mid-point being $310 million).

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month.

VGM Scores

At this time, Howmet has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Howmet has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

Performance of an Industry Player

Howmet belongs to the Zacks Engineering - R and D Services industry. Another stock from the same industry, KBR Inc. (KBR - Free Report) , has gained 1.8% over the past month. More than a month has passed since the company reported results for the quarter ended March 2022.

KBR reported revenues of $1.71 billion in the last reported quarter, representing a year-over-year change of +17.3%. EPS of $0.62 for the same period compares with $0.48 a year ago.

For the current quarter, KBR is expected to post earnings of $0.64 per share, indicating a change of +10.3% from the year-ago quarter. The Zacks Consensus Estimate has changed +3.9% over the last 30 days.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #2 (Buy) for KBR. Also, the stock has a VGM Score of B.


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