Howmet Aerospace(HWM)2022-03-16 15:53Summary of Howmet Aerospace Inc. Conference Call Company Overview - Company: Howmet Aerospace Inc. (NYSE: HWM) - Date: March 15, 2022 - Participants: John Plant (CEO), Ken Giacobbe (CFO), Paul Luther (VP, Investor Relations), Seth Seifman (J.P. Morgan Analyst) Key Industry Insights Titanium Supply and Opportunities - The sanctions on Russian titanium supplier VSMPO are expected to create opportunities for Howmet as Russian titanium becomes unavailable to major aerospace manufacturers like Boeing and Airbus [3][4] - Boeing has indicated it has a couple of years of titanium supply, while Airbus's inventory is lower, suggesting a higher urgency for Airbus [4] - Howmet is in discussions with aircraft manufacturers and other titanium users to secure long-term agreements for titanium supply [5][6] - The company has existing tooling for certain forging parts, allowing for a quicker response to increased demand [8] Market Dynamics and Production Expectations - The company anticipates a significant opportunity in the titanium market, potentially capturing a substantial portion of the $27 billion business previously held by VSMPO [12][13] - Howmet's structures business, which includes sophisticated forging for structural parts, has seen a decline in volume but is expected to improve as aircraft production ramps up [14][15] - The company is optimistic about the recovery of commercial aerospace spares, projecting a 30% increase year-on-year [36] Metal Price Volatility - The volatility in nickel and aluminum prices poses challenges, but Howmet has mechanisms in place to manage these fluctuations through pass-through contracts [17][21] - The company expects to face headwinds from rising metal prices but aims to maintain or improve margins through operational efficiencies [23] Aircraft Production and Demand - Howmet's expectations for Boeing's 787 production remain unchanged, awaiting recertification dates [26] - The company is confident in its ability to meet rising production rates for both Boeing and Airbus engines, with plans to increase hiring to support this growth [33][34] Supply Chain and Recovery - The supply chain for truck builds is showing signs of recovery, with expectations for improved availability in the second half of the year [40][42] - Howmet has introduced new products, such as a 36-pound wheel, which enhances fuel efficiency and payload capacity [46] Financial Performance and Cash Flow - Howmet converted 10% of sales into free cash flow last year, with expectations to improve this to 11% in the current year [47] - The company has significantly reduced cash drag from pension liabilities, enhancing free cash flow potential [49] - Working capital is expected to be a drag on free cash flow in 2023, but the company remains optimistic about overall cash flow performance [51] Strategic Outlook - The company aims to improve its leverage and return capital to shareholders while maintaining a focus on technological advancements and customer satisfaction [55] - John Plant expressed confidence in the company's future, emphasizing the importance of articulating growth above aircraft build rates [54] Conclusion - Howmet Aerospace is positioned to capitalize on the changing dynamics in the aerospace industry, particularly in titanium supply and aircraft production recovery, while navigating challenges related to metal price volatility and supply chain disruptions. The company's strategic focus on long-term agreements and operational efficiencies is expected to drive future growth and profitability.