First Quarter 2019 Highlights
- Revenue of $3.5 billion, up 3% year over year; organic revenue1 up 9% year over year
- Net income of $187 million, or $0.39 per share, versus net income of $143 million, or $0.29 per share, in the first quarter 2018
- Net income excluding special items of $208 million, or $0.43 per share, versus $169 million, or $0.34 per share, in the first quarter 2018
- Operating income of $374 million, up 12% year over year
- Operating income excluding special items of $397 million, up 15% year over year
- Operating income margin excluding special items up 120 basis points year over year
2019 Guidance * Updated
- Updated Full Year 2019 Guidance: Revenue $14.3-$14.6 billion, Earnings Per Share Excluding Special Items $1.75-$1.90, Adjusted Free Cash Flow $650-$750 million
Key Announcements
- Actions underway to reduce operating costs by approximately $230 million on a run-rate basis – a $30 million increase from initial $200 million target. Approximately $120 million of the savings are expected to be captured in 2019.
- Repurchased $700 million of common stock; $300 million remains authorized for share repurchases through the end of 2020.
- Portfolio of each post-separation company defined: Global Rolled Products will comprise rolled aluminum products and aluminum extrusions. The Engineered Products & Forgings business will include engine components, fastening systems and engineered structures. The businesses of the current Transportation and Construction Solutions segment will be divided – the Building and Construction Systems business will be retained and included in Global Rolled Products, and forged aluminum wheels will become part of Engineered Products & Forgings.
- Reduced quarterly common stock dividend from $0.06 to $0.02 per share.
___________________________________
* Reconciliations of the forward-looking non-GAAP measures to the most directly comparable GAAP measures are not available without unreasonable efforts due to the variability and complexity of the charges and other components excluded from the non-GAAP measures – for further detail, see “Updated Full Year 2019 Guidance” below.
NEW YORK–(BUSINESS WIRE)–Arconic Inc. (NYSE: ARNC) today reported first quarter 2019 results, for
which the Company reported revenues of $3.5 billion, up 3% year over
year. Organic revenue1 was up 9% year over year on
strong volumes across all segments and all key markets, primarily in the
aerospace, defense, commercial transportation, automotive, packaging,
and building and construction end markets, as well as favorable
aerospace pricing.
Net income in the first quarter 2019 was $187 million, or $0.39 per
share, versus $143 million, or $0.29 per share, in the first quarter
2018. Net income excluding special items was $208 million, or $0.43 per
share, in the first quarter 2019, versus $169 million, or $0.34 per
share, in the first quarter 2018. Special items in the first quarter
2019 were $21 million, principally related to charges associated with
cost reduction initiatives, partially offset by a credit associated with
the elimination of certain postretirement benefits.
First quarter 2019 operating income was $374 million, up 12% year over
year. Operating income excluding special items was $397 million, up 15%
year over year, as higher volumes and favorable product pricing more
than offset the impact of transitioning Tennessee Packaging to
industrial products.
Arconic Chairman and Chief Executive Officer John Plant said, “In the
first quarter 2019, the Arconic team improved revenue, expanded margins,
improved adjusted free cash flow year over year, and delivered the
highest quarterly adjusted operating income, adjusted earnings per share
and RONA since 2016 separation. We expect this positive trend to
continue in the second quarter. As plans for separation move forward, we
are also acting swiftly to reduce costs to be in line with industry
leading peers and are targeting the sale of certain businesses that are
non-core to either of the future entities. These actions will help drive
the margin performance of the company.”
Arconic ended the first quarter 2019 with cash on hand of $1.3 billion.
Cash used for operations was $258 million, driven by typical seasonal
first-quarter build in working capital and semi-annual interest
payments; cash used for financing activities totaled $741 million,
reflecting the impact of the accelerated share repurchase program of
$700 million; and cash provided from investing activities was $42
million. Adjusted Free Cash Flow for the quarter was negative $266
million, up $151 million year over year principally due to lower pension
contributions. In the first quarter 2018, cash used for operations was
$436 million; cash used for financing activities totaled $542 million;
and cash provided from investing activities was $29 million.
First Quarter 2019 Segment Performance
In the first quarter 2019, the Company transferred its aluminum
extrusions operations from the Engineered Products and Solutions (EP&S)
segment to the Global Rolled Products (GRP) segment, based on synergies
with GRP including similar customer base, technologies and manufacturing
capabilities. Prior period information has been recast to conform to
current year presentation.
Engineered Products and Solutions (EP&S)
EP&S reported revenue of $1.5 billion, an increase of 5% year over year.
Organic revenue1 was up 7%, driven by aero engine and defense
growth. Segment operating profit was $253 million, up $44 million or 21%
year over year, driven by volume increases in high growth aerospace and
defense markets, favorable aerospace pricing and cost reductions,
partially offset by aero engines new product introductions. Segment
operating margin was 16.8%, up 210 basis points year over year.
Global Rolled Products (GRP)
GRP reported revenue of $1.5 billion, an increase of 1% year over year.
Organic revenue1 was up 10%. Segment operating profit was
$107 million, down $17 million or 14% year over year, driven by the
Tennessee plant transition from packaging to industrial products and
operational headwinds in aluminum extrusions. These impacts were
partially offset by higher volumes in packaging, commercial
transportation, and aerospace, as well as favorable price increases in
industrial and commercial transportation. Segment operating margin was
7.1%, down 130 basis points year over year.
Transportation and Construction Solutions (TCS)
TCS reported revenue of $535 million, relatively flat year over year.
Organic revenue1 was up 7%. Segment operating profit was $87
million, up $20 million or 30% year over year, driven by higher volume
in commercial transportation and building and construction, as well as
net cost savings. Segment operating margin was 16.3%, up 380 basis
points year over year.
Updated Full Year 2019 Guidance*
Arconic is adjusting its full year 2019 guidance:
|
4Q 2018 |
Updated 1Q 2019 |
|||||||
|
Revenue |
$14.3-$14.6 billion | $14.3-$14.6 billion | ||||||
|
Earnings Per Share Excluding Special Items* |
$1.55-$1.65 | $1.75-$1.90 | ||||||
|
Adjusted Free Cash Flow* |
$400-$500 million | $650-$750 million | ||||||
Arconic expects second quarter 2019 earnings per share excluding special
items to be in a range of $0.46 to $0.51.
*
Arconic has not provided reconciliations of the
forward-looking non-GAAP financial measures, such as earnings per share
excluding special items and adjusted free cash flow, to the most
directly comparable GAAP financial measures. Such reconciliations
are not available without unreasonable efforts due to the variability
and complexity with respect to the charges and other components excluded
from the non-GAAP measures, such as the effects of foreign currency
movements, equity income, gains or losses on sales of assets, taxes and
any future restructuring or impairment charges. These reconciling items
are in addition to the inherent variability already included in the GAAP
measures, which includes, but is not limited to, price/mix and volume.
Arconic believes such reconciliations would imply a degree of
precision that would be confusing or misleading to investors.
Actions Underway to Reduce Operating Costs
Arconic has increased the annualized cost reduction target to save
approximately $230 million on a run-rate basis, versus its initial $200
million target that was announced in February 2019. As a result of
taking quick action in the first quarter, the Company expects to capture
approximately $120 million of savings in 2019.
Share Buyback of $700 Million is Complete
The share buyback of $700 million of common stock announced on February
19, 2019, is complete. Arconic received 31.9 million shares on February
21, 2019, and an additional 4.5 million shares on April 29, 2019. The
average share price was approximately $19.21. Three hundred million
dollars remains authorized for share repurchases through the end of
2020. Total shares outstanding as of April 29, 2019 are approximately
449 million.
Portfolio of Each Post-Separation Company Defined
The Arconic Separation Project Team has fixed the business perimeters of
the two public companies that will be headquartered in Pittsburgh, PA.
Global Rolled Products will comprise rolled aluminum products and
aluminum extrusions. The Engineered Products & Forgings business will
include engine components, fastening systems and engineered structures.
The businesses of the current Transportation and Construction Solutions
segment will be divided – the Building and Construction Systems business
will be retained and included in Global Rolled Products, and forged
aluminum wheels will become part of Engineered Products & Forgings. The
Company is targeting the initial filing of a Form 10 in the fourth
quarter 2019 and the completion of the Separation in the second quarter
2020.
Arconic Reduced Quarterly Common Stock Dividend
The Arconic Board of Directors approved the reduction of the quarterly
common stock dividend from $0.06 cents to $0.02 cents per share.
Arconic will hold its quarterly conference call at 10:00 AM Eastern
Time on April 30, 2019, to present first quarter 2019 financial results.
The call will be webcast via
www.arconic.com
.
Call information and related details are available at
www.arconic.com
under “Investors”; presentation materials will be available at
approximately 8:00 AM Eastern Time on April 30.
About Arconic
Arconic (NYSE: ARNC) creates breakthrough products that shape
industries. Working in close partnership with our customers, we solve
complex engineering challenges to transform the way we fly, drive, build
and power. Through the ingenuity of our people and cutting-edge advanced
manufacturing techniques, we deliver these products at a quality and
efficiency that ensure customer success and shareholder value. For more
information: www.arconic.com.
Follow @arconic: Twitter,
Instagram,
Facebook,
LinkedIn
and YouTube.
Dissemination of Company Information
Arconic intends to make future announcements regarding Company
developments and financial performance through its website at www.arconic.com.
Forward-Looking Statements
This release contains statements that relate to future events and
expectations and as such constitute forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements include those containing such words as
“anticipates,” “believes,” “could,” “estimates,” “expects,” “forecasts,”
“goal,” “guidance,” “intends,” “may,” “outlook,” “plans,” “projects,”
“seeks,” “sees,” “should,” “targets,” “will,” “would,” or other words of
similar meaning. All statements that reflect Arconic’s expectations,
assumptions or projections about the future, other than statements of
historical fact, are forward-looking statements, including, without
limitation, forecasts and expectations relating to the growth of the
aerospace, defense, automotive, industrials, commercial transportation
and other end markets; statements and guidance regarding future
financial results or operating performance; statements regarding future
strategic actions, including share repurchases, which may be subject to
market conditions, legal requirements and other considerations; and
statements about Arconic’s strategies, outlook, business and financial
prospects. These statements reflect beliefs and assumptions that are
based on Arconic’s perception of historical trends, current conditions
and expected future developments, as well as other factors Arconic
believes are appropriate in the circumstances. Forward-looking
statements are not guarantees of future performance and are subject to
risks, uncertainties and changes in circumstances that are difficult to
predict, which could cause actual results to differ materially from
those indicated by these statements. Such risks and uncertainties
include, but are not limited to: (a) uncertainties regarding the planned
separation, including whether it will be completed pursuant to the
targeted timing, asset perimeters, and other anticipated terms, if at
all; (b) the impact of the separation on the businesses of Arconic; (c)
the risk that the businesses will not be separated successfully or such
separation may be more difficult, time-consuming or costly than
expected, which could result in additional demands on Arconic’s
resources, systems, procedures and controls, disruption of its ongoing
business, and diversion of management’s attention from other business
concerns; (d) deterioration in global economic and financial market
conditions generally; (e) unfavorable changes in the markets served by
Arconic; (f) the inability to achieve the level of revenue growth, cash
generation, cost savings, improvement in profitability and margins,
fiscal discipline, or strengthening of competitiveness and operations
anticipated or targeted; (g) competition from new product offerings,
disruptive technologies or other developments; (h) political, economic,
and regulatory risks relating to Arconic’s global operations, including
compliance with U.S. and foreign trade and tax laws, sanctions,
embargoes and other regulations; (i) manufacturing difficulties or other
issues that impact product performance, quality or safety; (j) Arconic’s
inability to realize expected benefits, in each case as planned and by
targeted completion dates, from acquisitions, divestitures, facility
closures, curtailments, expansions, or joint ventures; (k) the impact of
potential cyber attacks and information technology or data security
breaches; (l) the loss of significant customers or adverse changes in
customers’ business or financial conditions; (m) adverse changes in
discount rates or investment returns on pension assets; (n) the impact
of changes in aluminum prices and foreign currency exchange rates on
costs and results; (o) the outcome of contingencies, including legal
proceedings, government or regulatory investigations, and environmental
remediation, which can expose Arconic to substantial costs and
liabilities; and (p) the other risk factors summarized in Arconic’s Form
10-K for the year ended December 31, 2018 and other reports filed with
the U.S. Securities and Exchange Commission (SEC). Market projections
are subject to the risks discussed above and other risks in the market.
The statements in this release are made as of the date of this release,
even if subsequently made available by Arconic on its website or
otherwise. Arconic disclaims any intention or obligation to update
publicly any forward-looking statements, whether in response to new
information, future events, or otherwise, except as required by
applicable law.
Non-GAAP Financial Measures
Some of the information included in this release is derived from
Arconic’s consolidated financial information but is not presented in
Arconic’s financial statements prepared in accordance with accounting
principles generally accepted in the United States of America (GAAP).
Certain of these data are considered “non-GAAP financial measures” under
SEC rules. These non-GAAP financial measures supplement our GAAP
disclosures and should not be considered an alternative to the GAAP
measure. Reconciliations to the most directly comparable GAAP financial
measures and management’s rationale for the use of the non-GAAP
financial measures can be found in the schedules to this release.
___________________________________
1
Organic revenue is U.S. GAAP revenue adjusted for Tennessee Packaging
(due to its completed phase-down as of year-end 2018), divestitures, and
changes in aluminum prices and foreign currency exchange rates relative
to prior year period.
| Arconic and subsidiaries | |||||||||||
| Statement of Consolidated Operations (unaudited) | |||||||||||
| (in millions, except per-share and share amounts) | |||||||||||
| Quarter ended | |||||||||||
| March 31, 2019 | December 31, 2018 | March 31, 2018 | |||||||||
| Sales | $ | 3,541 | $ | 3,472 | $ | 3,445 | |||||
| Cost of goods sold (exclusive of expenses below) | 2,818 | 2,845 | 2,768 | ||||||||
| Selling, general administrative, and other expenses | 178 | 140 | 172 | ||||||||
| Research and development expenses | 22 | 26 | 23 | ||||||||
| Provision for depreciation and amortization | 137 | 149 | 142 | ||||||||
| Restructuring and other charges(1) | 12 | (11 | ) | 7 | |||||||
| Operating income | 374 | 323 | 333 | ||||||||
| Interest expense(2) | 85 | 87 | 114 | ||||||||
| Other expense, net | 32 | 10 | 20 | ||||||||
| Income before income taxes | 257 | 226 | 199 | ||||||||
| Provision for income taxes | 70 | 8 | 56 | ||||||||
| Net income | $ | 187 | $ | 218 | $ | 143 | |||||
| EARNINGS PER SHARE ATTRIBUTABLE TO ARCONIC COMMON SHAREHOLDERS: | |||||||||||
| Basic(3)(4): | |||||||||||
| Earnings per share | $ | 0.40 | $ | 0.45 | $ | 0.30 | |||||
| Average number of shares(4)(5) | 470,798,121 | 483,239,287 | 482,438,854 | ||||||||
| Diluted(3)(4): | |||||||||||
| Earnings per share | $ | 0.39 | $ | 0.44 | $ | 0.29 | |||||
| Average number of shares(4)(5) | 489,059,798 | 503,018,904 | 502,924,068 | ||||||||
| Common stock outstanding at the end of the period(5) | 453,093,877 | 483,270,717 | 482,819,135 | ||||||||
| (1) | Restructuring and other charges for the quarter ended March 31, 2019 primarily included severance costs of $67, partially offset by a credit of $58 related to the elimination of life insurance benefits for U.S. salaried and non-bargained hourly retirees of the Company and its subsidiaries. Restructuring and other charges for the quarter ended December 31, 2018 primarily included a gain of $154 on the sale of the Texarkana rolling mill, offset by pension plan settlement charges of $92 associated with significant lump sum payments made to participants and a loss of $43 on the sale of the Eger, Hungary forgings business. |
|
| (2) | Interest expense for the quarter ended March 31, 2018 included $19 related to the early redemption of the Company’s outstanding 5.720% Senior Notes due 2019. |
|
| (3) | In order to calculate both basic and diluted earnings per share, preferred stock dividends declared of $1 for the quarters ended March 31, 2019, December 31, 2018, and March 31, 2018 need to be subtracted from Net income. |
|
| (4) | For the quarters ended March 31, 2019, December 31, 2018, and March 31, 2018, the difference between the respective diluted average number of shares and the respective basic average number of shares related to share equivalents (18 million, 20 million, and 20 million, respectively) associated with outstanding employee stock options and awards and shares underlying outstanding convertible debt (acquired through the acquisition of RTI International Metals, Inc (“RTI”)). |
|
| (5) | Basic and diluted average number of shares and Common stock outstanding at the end of the period for the quarter ended March 31, 2019 included the impact of the accelerated share repurchase program of the Company’s common stock. |
|
| Arconic and subsidiaries | ||||||||
| Consolidated Balance Sheet (unaudited) | ||||||||
| (in millions) | ||||||||
| March 31, 2019 | December 31, 2018 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 1,319 | $ | 2,277 | ||||
| Receivables from customers, less allowances of $4 in 2019 and 2018 | 1,170 | 1,047 | ||||||
| Other receivables | 646 | 451 | ||||||
| Inventories | 2,612 | 2,492 | ||||||
| Prepaid expenses and other current assets | 306 | 314 | ||||||
| Total current assets | 6,053 | 6,581 | ||||||
| Properties, plants, and equipment, net(1) | 5,727 | 5,704 | ||||||
| Goodwill | 4,509 | 4,500 | ||||||
| Deferred income taxes | 480 | 573 | ||||||
| Intangibles, net | 912 | 919 | ||||||
| Other noncurrent assets(1) | 680 | 416 | ||||||
| Total assets | $ | 18,361 | $ | 18,693 | ||||
| Liabilities | ||||||||
| Current liabilities: | ||||||||
| Accounts payable, trade | $ | 2,193 | $ | 2,129 | ||||
| Accrued compensation and retirement costs | 339 | 370 | ||||||
| Taxes, including income taxes | 114 | 118 | ||||||
| Accrued interest payable | 97 | 113 | ||||||
| Other current liabilities(1) | 481 | 356 | ||||||
| Short-term debt | 435 | 434 | ||||||
| Total current liabilities | 3,659 | 3,520 | ||||||
| Long-term debt, less amount due within one year | 5,899 | 5,896 | ||||||
| Accrued pension benefits | 2,172 | 2,230 | ||||||
| Accrued other postretirement benefits | 636 | 723 | ||||||
| Other noncurrent liabilities and deferred credits(1) | 817 | 739 | ||||||
| Total liabilities | 13,183 | 13,108 | ||||||
| Equity | ||||||||
| Arconic shareholders’ equity: | ||||||||
| Preferred stock | 55 | 55 | ||||||
| Common stock(2) | 453 | 483 | ||||||
| Additional capital(2) | 7,644 | 8,319 | ||||||
| Accumulated deficit(1) | (134 | ) | (358 | ) | ||||
| Accumulated other comprehensive loss | (2,852 | ) | (2,926 | ) | ||||
| Total Arconic shareholders’ equity | 5,166 | 5,573 | ||||||
| Noncontrolling interests | 12 | 12 | ||||||
| Total equity | 5,178 | 5,585 | ||||||
| Total liabilities and equity | $ | 18,361 | $ | 18,693 | ||||
| (1) | Effective January 1, 2019, Arconic adopted the new accounting standard for leases that resulted in the Company recording operating lease right-of-use assets and lease liabilities of approximately $320. Also, the Company reclassified cash proceeds of $119 from Other noncurrent liabilities and deferred credits, assets of $24 from Properties, plants, and equipment, net, and a deferred tax asset of $22 from Other noncurrent assets to Accumulated deficit reflecting the cumulative effect of an accounting change related to the deferred gain resulting from the sale-leaseback of the Texarkana, Texas cast house in October of 2018. The adoption of the standard had no impact on the Statement of Consolidated Operations or Statement of Consolidated Cash Flows. |
|
| (2) | Reflects the impact of the accelerated share repurchase program of the Company’s common stock. |
|
| Arconic and subsidiaries | ||||||||
| Statement of Consolidated Cash Flows (unaudited) | ||||||||
| (in millions) | ||||||||
| Three months ended March 31, | ||||||||
| 2019 | 2018 | |||||||
| Operating activities | ||||||||
| Net income | $ | 187 | $ | 143 | ||||
| Adjustments to reconcile net income to cash used for operations: | ||||||||
| Depreciation and amortization | 137 | 142 | ||||||
| Deferred income taxes | 8 | 18 | ||||||
| Restructuring and other charges | 12 | 7 | ||||||
| Net loss from investing activities—asset sales | 2 | 3 | ||||||
| Net periodic pension benefit cost | 29 | 41 | ||||||
| Stock-based compensation | 10 | 15 | ||||||
| Other | 11 | 49 | ||||||
| Changes in assets and liabilities, excluding effects of acquisitions, divestitures, and foreign currency translation adjustments: |
||||||||
| (Increase) in receivables | (489 | ) | (403 | ) | ||||
| (Increase) in inventories | (118 | ) | (141 | ) | ||||
| (Increase) in prepaid expenses and other current assets | (14 | ) | (12 | ) | ||||
| Increase in accounts payable, trade | 65 | 14 | ||||||
| (Decrease) in accrued expenses | (69 | ) | (118 | ) | ||||
| Increase in taxes, including income taxes | 47 | 8 | ||||||
| Pension contributions | (55 | ) | (177 | ) | ||||
| (Increase) decrease in noncurrent assets | (1 | ) | 1 | |||||
| (Decrease) in noncurrent liabilities | (20 | ) | (26 | ) | ||||
| Cash used for operations | (258 | ) | (436 | ) | ||||
| Financing Activities | ||||||||
| Net change in short-term borrowings (original maturities of three months or less) |
1 | 5 | ||||||
| Additions to debt (original maturities greater than three months) | 150 | 150 | ||||||
| Payments on debt (original maturities greater than three months) | (151 | ) | (651 | ) | ||||
| Premiums paid on early redemption of debt | — | (17 | ) | |||||
| Proceeds from exercise of employee stock options | 1 | 12 | ||||||
| Dividends paid to shareholders | (29 | ) | (30 | ) | ||||
| Repurchases of common stock(1) | (700 | ) | — | |||||
| Other | (13 | ) | (11 | ) | ||||
| Cash used for financing activities | (741 | ) | (542 | ) | ||||
| Investing Activities | ||||||||
| Capital expenditures | (168 | ) | (117 | ) | ||||
| Proceeds from the sale of assets and businesses | 4 | — | ||||||
| Sales of investments | 47 | 9 | ||||||
| Cash receipts from sold receivables | 160 | 136 | ||||||
| Other | (1 | ) | 1 | |||||
| Cash provided from investing activities | 42 | 29 | ||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash |
1 | 4 | ||||||
| Net change in cash, cash equivalents and restricted cash | (956 | ) | (945 | ) | ||||
| Cash, cash equivalents and restricted cash at beginning of year | 2,282 | 2,153 | ||||||
| Cash, cash equivalents and restricted cash at end of period | $ | 1,326 | $ | 1,208 | ||||
| (1) | On February 19, 2019, Arconic entered into an accelerated share repurchase (ASR) agreement with JPMorgan Chase Bank to repurchase $700 of its common stock. Under the ASR agreement, Arconic received an initial delivery of approximately 32 million shares on February 21, 2019, which were immediately retired. On April 25, 2019, the ASR concluded with the Company receiving approximately 4 million additional shares on April 29, 2019. A total of 36 million shares, at an average price of $19.21 per share, were repurchased under the agreement. |
|
| Arconic and subsidiaries | ||||||||||||||||||||||||
| Segment Information (unaudited) | ||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||
| 1Q18 | 2Q18 | 3Q18 | 4Q18 | 2018 | 1Q19 | |||||||||||||||||||
|
|
||||||||||||||||||||||||
| Third-party sales | $ | 1,426 | $ | 1,474 | $ | 1,445 | $ | 1,487 | $ | 5,832 | $ | 1,502 | ||||||||||||
| Segment operating profit | $ | 209 | $ | 224 | $ | 235 | $ | 216 | $ | 884 | $ | 253 | ||||||||||||
| Segment operating profit margin | 14.7 | % | 15.2 | % | 16.3 | % | 14.5 | % | 15.2 | % | 16.8 | % | ||||||||||||
| Provision for depreciation and amortization | $ | 65 | $ | 65 | $ | 65 | $ | 64 | $ | 259 | $ | 64 | ||||||||||||
| Restructuring and other charges | $ | 1 | $ | 8 | $ | 16 | $ | 46 | $ | 71 | $ | 14 | ||||||||||||
|
|
||||||||||||||||||||||||
| Third-party sales | $ | 1,481 | $ | 1,573 | $ | 1,547 | $ | 1,487 | $ | 6,088 | $ | 1,503 | ||||||||||||
| Intersegment sales | $ | 57 | $ | 61 | $ | 44 | $ | 45 | $ | 207 | $ | 55 | ||||||||||||
| Segment operating profit(1) | $ | 124 | $ | 111 | $ | 77 | $ | 81 | $ | 393 | $ | 107 | ||||||||||||
| Segment operating profit margin | 8.4 | % | 7.1 | % | 5.0 | % | 5.4 | % | 6.5 | % | 7.1 | % | ||||||||||||
| Provision for depreciation and amortization | $ | 56 | $ | 59 | $ | 56 | $ | 64 | $ | 235 | $ | 54 | ||||||||||||
| Restructuring and other charges | $ | (1 | ) | $ | 2 | $ | 2 | $ | (159 | ) | $ | (156 | ) | $ | 6 | |||||||||
| Third-party aluminum shipments (kmt) | 322 | 330 | 330 | 319 | 1,301 | 331 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
| Third-party sales | $ | 537 | $ | 562 | $ | 530 | $ | 497 | $ | 2,126 | $ | 535 | ||||||||||||
| Segment operating profit | $ | 67 | $ | 97 | $ | 77 | $ | 63 | $ | 304 | $ | 87 | ||||||||||||
| Segment operating profit margin | 12.5 | % | 17.3 | % | 14.5 | % | 12.7 | % | 14.3 | % | 16.3 | % | ||||||||||||
| Provision for depreciation and amortization | $ | 13 | $ | 12 | $ | 12 | $ | 13 | $ | 50 | $ | 13 | ||||||||||||
| Restructuring and other charges | $ | — | $ | — | $ | — | $ | 1 | $ | 1 | $ | 9 | ||||||||||||
| Reconciliation of Total segment operating profit to Consolidated income before income taxes: |
||||||||||||||||||||||||
| Total segment operating profit | $ | 400 | $ | 432 | $ | 389 | $ | 360 | $ | 1,581 | $ | 447 | ||||||||||||
| Unallocated amounts: | ||||||||||||||||||||||||
| Restructuring and other charges | (7 | ) | (15 | ) | 2 | 11 | (9 | ) | (12 | ) | ||||||||||||||
| Corporate expense(2) | (60 | ) | (93 | ) | (46 | ) | (48 | ) | (247 | ) | (61 | ) | ||||||||||||
| Consolidated operating income | 333 | 324 | 345 | 323 | 1,325 | 374 | ||||||||||||||||||
| Interest expense(3) | (114 | ) | (89 | ) | (88 | ) | (87 | ) | (378 | ) | (85 | ) | ||||||||||||
| Other expense, net | (20 | ) | (41 | ) | (8 | ) | (10 | ) | (79 | ) | (32 | ) | ||||||||||||
| Consolidated income before income taxes | $ | 199 | $ | 194 | $ | 249 | $ | 226 | $ | 868 | $ | 257 | ||||||||||||
In the first quarter of 2019, the Company transferred its aluminum
extrusions operations from the Arconic Engineered Structures business
unit within the Engineered Products and Solutions segment to the Global
Rolled Products segment. Prior period financial information has been
recast to conform to current year presentation. Segment performance
under Arconic’s management reporting system is evaluated based on a
number of factors; however, the primary measure of performance is
Segment operating profit. Arconic’s definition of Segment operating
profit is Operating income excluding Special items. Special items
include Restructuring and other charges. Segment operating profit
includes the impact of LIFO inventory accounting, metal price lag,
intersegment profit eliminations, and derivative activities. Differences
between certain segment totals and consolidated Arconic are in Corporate.
| (1) | For the quarter ended June 30, 2018, Segment operating profit for the Global Rolled Products segment included the impact of a $23 charge related to a physical inventory adjustment at one plant. |
|
| (2) | For the quarter ended June 30, 2018, Corporate expense included $38 of costs related to settlements of certain customer claims primarily related to product introductions. |
|
| (3) | For quarter ended March 31, 2018, Interest expense included $19 related to the early redemption of the Company’s outstanding 5.720% Senior Notes due 2019. |
|
| Arconic and subsidiaries | ||||||||||||
| Calculation of Financial Measures (unaudited) | ||||||||||||
| (in millions, except per-share amounts) | ||||||||||||
| Net income excluding Special items | Quarter ended | |||||||||||
|
March 31, 2019 |
December 31, 2018 |
March 31, 2018 |
||||||||||
| Net income | $ | 187 | $ | 218 | $ | 143 | ||||||
| Diluted earnings per share (EPS) | $ | 0.39 | $ | 0.44 | $ | 0.29 | ||||||
| Special items: | ||||||||||||
| Restructuring and other charges | 12 | (11 | ) | 7 | ||||||||
| Discrete tax items(1) | 1 | (64 | ) | 2 | ||||||||
| Other special items(2) | 12 | 16 | 25 | |||||||||
| Tax impact(3) | (4 | ) | 3 | (8 | ) | |||||||
| Net income excluding Special items | $ | 208 | $ | 162 | $ | 169 | ||||||
| Diluted EPS excluding Special items | $ | 0.43 | $ | 0.33 | $ | 0.34 | ||||||
| Average number of shares – diluted EPS excluding Special items(4) | 489,059,798 | 503,018,904 | 502,924,068 | |||||||||
Net income excluding Special items and Diluted EPS excluding Special
items are non-GAAP financial measures. Management believes that these
measures are meaningful to investors because management reviews the
operating results of Arconic excluding the impacts of Restructuring and
other charges, Discrete tax items, and Other special items
(collectively, “Special items”). There can be no assurances that
additional special items will not occur in future periods. To compensate
for this limitation, management believes that it is appropriate to
consider both Net income determined under GAAP as well as Net income
excluding Special items.
| (1) | Discrete tax items for each period included the following: | |||
| • | for the quarter ended March 31, 2019, a charge for a number of small items ($1); |
|||
| • | for the quarter ended December 31, 2018, a benefit related to certain prior year foreign investment losses no longer recapturable ($74), a benefit to record prior year adjustments in various jurisdictions ($17), a benefit to release valuation allowances and revalue deferred taxes due to current year tax law and tax rate changes in various U.S. states ($12), a benefit to recognize the tax impact of prior year foreign losses in continuing operations that were supported by foreign income in other comprehensive income ($6), partially offset by a charge from the Company’s finalized analysis of the U.S. Tax Cuts and Jobs Act of 2017 ($45); and |
|||
| • | for the quarter ended March 31, 2018, a charge for a number of small items ($2). |
|||
| (2) | Other special items for each period included the following: | |||
| • | for the quarter ended March 31, 2019, strategy and portfolio review costs ($6), costs associated with the planned separation of Arconic ($3), legal and other advisory costs related to Grenfell Tower ($2), and a charge for a number of small tax items ($1); |
|||
| • | for the quarter ended December 31, 2018, strategy and portfolio review costs ($7), legal and other advisory costs related to Grenfell Tower ($4), a charge for a number of small tax items ($4), and an other charge ($1); and |
|||
| • | for the quarter ended March 31, 2018, costs related to the early redemption of the Company’s outstanding 5.720% Senior Notes due 2019 ($19), legal and other advisory costs related to Grenfell Tower ($5), and a charge for a number of small tax items ($1); |
|||
| (3) | The tax impact on Special items is based on the applicable statutory rates whereby the difference between such rates and Arconic’s consolidated estimated annual effective tax rate is itself a Special item. |
|||
| (4) | The average number of shares applicable to diluted EPS excluding Special items, includes certain share equivalents as their effect was dilutive. For all periods presented, share equivalents associated with outstanding employee stock options and awards and shares underlying outstanding convertible debt (acquired through the acquisition of RTI) were dilutive based on Net income excluding Special items. The average number of shares applicable to diluted EPS excluding Special items for the quarter ended March 31, 2019 included the impact of the accelerated share repurchase program of the Company’s common stock. |
|||
| Operational Tax Rate | Quarter ended March 31, 2019 | |||||||||||
| As reported |
Special items |
As adjusted | ||||||||||
| Income before income taxes | $ | 257 | $ | 23 | $ | 280 | ||||||
| Provision for income taxes | 70 | 2 | 72 | |||||||||
| Operational tax rate | 27.2 | % | 25.7 | % | ||||||||
Operational tax rate is a non-GAAP financial measure. Management
believes that this measure is meaningful to investors because management
reviews the operating results of Arconic excluding the impacts of
Special items. There can be no assurances that additional Special items
will not occur in future periods. To compensate for this limitation,
management believes that it is appropriate to consider both the
Effective tax rate determined under GAAP as well as the Operational tax
rate.
|
(1) |
See Net income excluding Special items reconciliation above for a description of Special items. |
|
| Arconic and subsidiaries | |||||||||||||||
| Calculation of Financial Measures (unaudited), continued | |||||||||||||||
| (dollars in millions) | |||||||||||||||
| Organic Revenue |
Quarter ended March 31, |
Quarter ended December 31, |
|||||||||||||
| 2019 | 2018 | 2018 | 2017 | ||||||||||||
|
Arconic |
|||||||||||||||
| Sales – Arconic | $ | 3,541 | $ | 3,445 | $ | 3,472 | $ | 3,271 | |||||||
| Less: | |||||||||||||||
| Sales – Tennessee packaging | — | 43 | 18 | 40 | |||||||||||
| Sales – Eger forgings | — | 10 | 6 | 12 | |||||||||||
| Sales – Latin America extrusions | — | 25 | — | 29 | |||||||||||
| Aluminum price impact | (59 | ) | n/a | (28 | ) | n/a | |||||||||
| Foreign currency impact | (55 | ) | n/a | (26 | ) | n/a | |||||||||
| Arconic Organic revenue | $ | 3,655 | $ | 3,367 | $ | 3,502 | $ | 3,190 | |||||||
|
Engineered Products and Solutions (EP&S) |
|||||||||||||||
| Sales | $ | 1,502 | $ | 1,426 | $ | 1,487 | $ | 1,378 | |||||||
| Less: | |||||||||||||||
| Sales – Eger forgings | — | 10 | 6 | 12 | |||||||||||
| Aluminum price impact | (2 | ) | n/a | (4 | ) | n/a | |||||||||
| Foreign currency impact | (13 | ) | n/a | (6 | ) | n/a | |||||||||
| EP&S Organic revenue | $ | 1,517 | $ | 1,416 | $ | 1,491 | $ | 1,366 | |||||||
|
Global Rolled Products (GRP) |
|||||||||||||||
| Sales | $ | 1,503 | $ | 1,481 | $ | 1,487 | $ | 1,363 | |||||||
| Less: | |||||||||||||||
| Sales – Tennessee packaging | — | 43 | 18 | 40 | |||||||||||
| Aluminum price impact | (58 | ) | n/a | (10 | ) | n/a | |||||||||
| Foreign currency impact | (26 | ) | n/a | (13 | ) | n/a | |||||||||
| GRP Organic revenue | $ | 1,587 | $ | 1,438 | $ | 1,492 | $ | 1,323 | |||||||
|
Transportation and Construction Solutions |
|||||||||||||||
| Sales | $ | 535 | $ | 537 | $ | 497 | $ | 528 | |||||||
| Less: | |||||||||||||||
| Sales – Latin America extrusions | — | 25 | — | 29 | |||||||||||
| Aluminum price impact | 1 | n/a | (14 | ) | n/a | ||||||||||
| Foreign currency impact | (16 | ) | n/a | (7 | ) | n/a | |||||||||
| TCS Organic revenue | $ | 550 | $ | 512 | $ | 518 | $ | 499 | |||||||
Organic revenue is a non-GAAP financial measure. Management believes
this measure is meaningful to investors as it presents revenue on a
comparable basis for all periods presented due to the impact of the
ramp-down of Arconic’s North American packaging business at its
Tennessee operations (completed in December 2018), the sale of the
forgings business in Eger, Hungary (divested in December 2018), the sale
of Latin America extrusions (divested in April 2018), and the impact of
changes in aluminum prices and foreign currency fluctuations relative to
the prior year periods.
| Arconic and subsidiaries | ||||||||||||
| Calculation of Financial Measures (unaudited), continued | ||||||||||||
| (dollars in millions) | ||||||||||||
| Adjusted free cash flow | Quarter ended | |||||||||||
|
March 31, 2019 |
December 31, 2018 |
March 31, 2018 |
||||||||||
| Cash (used for) provided from operations | $ | (258 | ) | $ | 426 | $ | (436 | ) | ||||
| Cash receipts from sold receivables | 160 | 323 | 136 | |||||||||
| Capital expenditures | (168 | ) | (271 | ) | (117 | ) | ||||||
| Adjusted free cash flow | $ | (266 | ) | $ | 478 | $ | (417 | ) | ||||
There has been no change in the net cash funding in the sale of accounts
receivable program in the first quarter of 2019. It remains at $350.
Adjusted free cash flow is a non-GAAP financial measure. Management
believes that this measure is meaningful to investors because management
reviews cash flows generated from operations after taking into
consideration capital expenditures (due to the fact that these
expenditures are considered necessary to maintain and expand Arconic’s
asset base and are expected to generate future cash flows from
operations), as well as cash receipts from net sales of beneficial
interest in sold receivables. It is important to note that Adjusted free
cash flow does not represent the residual cash flow available for
discretionary expenditures since other non-discretionary expenditures,
such as mandatory debt service requirements, are not deducted from the
measure.
| Net Debt |
March 31, 2019 |
December 31, 2018 |
September 30, 2018 |
June 30, 2018 |
March 31, 2018 |
||||||||||||||
| Short-term debt | $ | 435 | $ | 434 | $ | 42 | $ | 45 | $ | 45 | |||||||||
| Long-term debt, less amount due within one year | 5,899 | 5,896 | 6,315 | 6,312 | 6,309 | ||||||||||||||
| Total debt | $ | 6,334 | $ | 6,330 | $ | 6,357 | $ | 6,357 | $ | 6,354 | |||||||||
| Less: Cash and cash equivalents | 1,319 | 2,277 | 1,535 | 1,455 | 1,205 | ||||||||||||||
| Net debt | $ | 5,015 | $ | 4,053 | $ | 4,822 | $ | 4,902 | $ | 5,149 | |||||||||
Net debt is a non-GAAP financial measure. Management believes that this
measure is meaningful to investors because management assesses Arconic’s
leverage position after factoring in available cash that could be used
to repay outstanding debt.
| Arconic and subsidiaries | ||||||||||||
| Calculation of Financial Measures (unaudited), continued | ||||||||||||
| (dollars in millions) | ||||||||||||
| Operating income excluding Special items | Quarter ended | |||||||||||
|
March 31, 2019 |
December 31, 2018 |
March 31, 2018 |
||||||||||
| Operating income | $ | 374 | $ | 323 | $ | 333 | ||||||
| Special items: | ||||||||||||
| Restructuring and other charges | 12 | (11 | ) | 7 | ||||||||
| Costs associated with planned separation | 3 | — | — | |||||||||
| Legal and other advisory costs related to Grenfell Tower | 2 | 4 | 5 | |||||||||
| Strategy and portfolio review costs | 6 | 7 | — | |||||||||
| Operating income excluding Special items | $ | 397 | $ | 323 | $ | 345 | ||||||
| Sales | $ | 3,541 | $ | 3,472 | $ | 3,445 | ||||||
| Operating income margin, excluding Special items | 11.2 | % | 9.3 | % | 10.0 | % | ||||||
Operating income and Operating income margin, excluding Special items
are non-GAAP financial measures. Management believes that these measures
are meaningful to investors because management reviews the operating
results of Arconic excluding the impacts of Special items. There can be
no assurances that additional Special items will not occur in future
periods. To compensate for this limitation, management believes that it
is appropriate to consider both Operating income determined under GAAP
as well as Operating income excluding Special items.
| Return on Net Assets (RONA) | Quarter ended | |||
| March 31, 2019 | ||||
| Net income | $ | 187 | ||
| Special items(1) | 21 | |||
| Net income excluding Special items | 208 | |||
| Annualized net income excluding Special items | 832 | |||
| Net Assets: | March 31, 2019 | |||
| Add: Receivables from customers, less allowances | $ | 1,170 | ||
| Add: Deferred purchase program(2) | 430 | |||
| Add: Inventories | 2,612 | |||
| Less: Accounts payable, trade | 2,193 | |||
| Working capital | 2,019 | |||
| Properties, plants, and equipment, net (PP&E) | 5,727 | |||
| Net assets – total | $ | 7,746 | ||
| RONA | 10.7 | % | ||
RONA is a non-GAAP financial measure. RONA is calculated as Net income
excluding Special items divided by working capital and net PP&E.
Management believes that this measure is meaningful to investors as RONA
helps management and investors determine the percentage of net income
the company is generating from its assets. This ratio tells how
effectively and efficiently the company is using its assets to generate
earnings.
| (1) | See Reconciliation of Net income excluding Special items for a description of Special items. |
|
| (2) | The Deferred purchase program relates to an arrangement to sell certain customer receivables to several financial institutions on a recurring basis. Arconic is adding back the receivable for the purposes of the Working capital calculation. |
|
Investors
Paul T. Luther
(212) 836-2758
Paul.Luther@arconic.com
Media
Esra Ozer
(412) 553-2666
Esra.Ozer@arconic.com