Second Quarter 2019 Highlights
- Revenue of $3.7 billion, up 3% year over year; organic revenue1
up 10% year over year
- Net loss of $121 million, or $0.27 per share, mainly driven by
non-cash asset impairments of $357 million, versus net income of
$120 million, or $0.24 per share, in the second quarter 2018
- Net income excluding special items of $269 million, or $0.58
per share, versus $185 million, or $0.37 per share, in the second
quarter 2018
- Operating loss of $81 million, versus operating income of $324
million in the second quarter 2018
- Operating income excluding special items of $484 million, up
27% year over year
- Operating income margin excluding special items up 240 basis
points year over year
- Cash balance of $1.4 billion, improved $38 million
sequentially
2019 Guidance* Updated
- Revenue unchanged at $14.3-$14.6 billion
- Increased the midpoint of Earnings Per Share Excluding Special
Items by 10%; increased the range from $1.75-$1.90 to
$1.95-$2.05
- Increased Adjusted Free Cash Flow to $700-$800 million
- Added guidance for EBITDA Excluding Special Items at
$2.25-$2.35 billion
Key Announcements
- Increased annual cost reduction commitment to approximately
$260 million on a run-rate basis.
- Increased 2019 cost reduction commitment to approximately $140
million in year.
- Repurchased an additional $200 million of common stock
following the $700 million of common stock repurchased earlier in
the year; $600 million remains authorized for share
repurchases.
- Portfolio separation remains on track for completion in the
second quarter 2020. The names of the two companies will be Howmet
Aerospace Inc. and Arconic Corporation. Identities of Remain Co.
and Spin Co. to be announced in third quarter 2019 earnings
release.
- Recorded a pre-tax $428 million non-cash impairment charge
related to the disks business within Engineered Products and
Solutions.
___________________________________
* 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.
Arconic Inc. (NYSE: ARNC) today reported second quarter 2019
results, for which the Company reported revenues of $3.7 billion,
up 3% year over year. Organic revenue1 was up 10% year over year on
strong volumes across all segments and all key markets, as well as
favorable pricing in Engineered Products and Solutions and Global
Rolled Products.
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Arconic reported a net loss of $121 million, or $0.27 per share,
in the second quarter 2019 versus net income of $120 million, or
$0.24 per share, in the second quarter 2018. Net income excluding
special items was $269 million, or $0.58 per share, in the second
quarter 2019, versus $185 million, or $0.37 per share, in the
second quarter 2018. Special items in the second quarter 2019 were
$390 million, principally related to charges associated with
non-cash asset impairments of $357 million, cost reduction
initiatives, environmental remediation related to Grasse River, and
separation costs, partially offset by discrete and special tax
items.
Second quarter 2019 operating loss was $81 million, versus
operating income of $324 million in the second quarter 2018.
Operating income excluding special items was $484 million, up 27%
year over year, as higher volumes, favorable product pricing,
favorable aluminum prices, and net cost reductions more than offset
operational challenges in aluminum extrusions and the continued
costs associated with the transition of Tennessee’s North American
packaging business to more profitable industrial products.
Arconic Chairman and Chief Executive Officer John Plant said,
“In the second quarter 2019, the Arconic team delivered improved
quarterly revenue, adjusted operating income, adjusted operating
income margin, and adjusted earnings per share on both a
year-over-year and sequential basis. Arconic’s second quarter 2019
RONA improved by 450 basis points year over year and 340 basis
points from the first quarter 2019. We expect this positive
year-over-year trend to continue in the third quarter. Based on our
first half performance and our outlook for the remainder of 2019,
we are increasing our full-year adjusted earnings per share and
adjusted free cash flow guidance for the second time in 2019.”
Arconic ended the second quarter 2019 with cash on hand of $1.4
billion. Cash provided from operations was $106 million; cash used
for financing activities totaled $201 million, reflecting the
impact of the accelerated share repurchase program of $200 million;
and cash provided from investing activities was $129 million.
Adjusted Free Cash Flow for the quarter was $227 million.
Second Quarter 2019 Segment Performance
Engineered Products and Solutions
(EP&S)
EP&S reported revenue of $1.6 billion, an increase of 6%
year over year. Organic revenue1 was up 8%, driven by aerospace
engine and defense growth. Segment operating profit was $286
million, up $62 million or 28% year over year, driven by net cost
reductions, favorable pricing, and volume increases, partially
offset by mix. Segment operating margin was 18.3%, up 310 basis
points year over year.
Global Rolled Products (GRP)
GRP reported revenue of $1.6 billion, relatively flat year over
year. Organic revenue1 was up 11%. Segment operating profit was
$145 million, up $34 million or 31% year over year, driven by
favorable pricing in industrial and commercial transportation;
volume growth in aerospace, automotive, and commercial
transportation; favorable aluminum prices; and net cost reductions.
These impacts were partially offset by operational challenges in
aluminum extrusions and continued costs associated with the
transition of Tennessee’s North American packaging business to more
profitable industrial products. Segment operating margin was 9.2%,
up 210 basis points year over year.
Transportation and Construction Solutions
(TCS)
TCS reported revenue of $548 million, a decrease of 2% year over
year. Organic revenue1 was up 3%. Segment operating profit was $107
million, up $10 million or 10% year over year, driven by net cost
reductions and growth in commercial transportation and building and
construction. Segment operating margin was 19.5%, up 220 basis
points year over year.
Updated Full Year 2019 Guidance*
Arconic is adjusting its full year 2019 guidance:
Previous (1Q 2019)
Updated (2Q 2019)
Revenue
$14.3-$14.6 billion
$14.3-$14.6 billion
Earnings Per Share Excluding Special
Items*
$1.75-$1.90
$1.95-$2.05
EBITDA Excluding Special Items*
n/a
$2.25-$2.35 billion
Adjusted Free Cash Flow*
$650-$750 million
$700-$800 million
Arconic expects third quarter 2019 Earnings Per Share Excluding
Special Items to be in a range of $0.47 to $0.53.
* All guidance excludes Separation impacts. Arconic has
not provided reconciliations of the forward-looking non-GAAP
financial measures, such as earnings per share excluding special
items, EBITDA 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.
Commitments to Cost Reduction
The Company has increased the annualized cost reduction
commitment to save approximately $260 million on a run-rate basis,
versus its $230 million commitment that was provided during its
first quarter 2019 earnings announcement. The Company expects to
capture approximately $140 million of savings in 2019, versus its
$120 million commitment that was provided during its first quarter
2019 earnings announcement.
Share Buyback of $900 Million is Complete
The share buyback of $700 million of common stock announced on
February 19, 2019 was completed on April 29, 2019. The share
buyback of $200 million of common stock announced on May 2, 2019
was completed on June 12, 2019. In total, Arconic repurchased
approximately 45.4 million shares at a weighted average price of
approximately $19.80 per share. Six hundred million dollars remains
authorized for share repurchases. Total shares outstanding as of
July 30, 2019 were approximately 440 million.
Portfolio Separation Remains on Track
The Company continues to target the initial filing of a Form 10
in the fourth quarter 2019 and the completion of the Separation in
the second quarter 2020. The entity that will comprise Global
Rolled Products (rolled aluminum products and aluminum extrusions)
and building and construction systems will be named Arconic
Corporation. The entity that will comprise Engineered Products and
Solutions (engine components, fastening systems, and engineered
structures) and forged aluminum wheels will be named Howmet
Aerospace Inc. The Company intends to announce the identities of
Remain Co. and Spin Co. in its third quarter 2019 earnings
release.
Non-Cash Asset Impairment
As part of Arconic’s five-year planning activity, the Company
continues to review its asset base to assess future cash flows.
This review resulted in Arconic recording a pre-tax $428 million
non-cash impairment charge in the second quarter 2019 related to
its disks business within Engineered Products and Solutions.
Arconic will hold its quarterly conference call at 10:00 AM
Eastern Time on August 2, 2019, to present second 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 August
2.
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
June 30, 2019
March 31, 2019
June 30, 2018
Sales
$
3,691
$
3,541
$
3,573
Cost of goods sold (exclusive of expenses
below)
2,939
2,818
2,903
Selling, general administrative, and other
expenses
178
178
158
Research and development expenses
17
22
29
Provision for depreciation and
amortization
139
137
144
Restructuring and other charges(1)
499
12
15
Operating (loss) income
(81
)
374
324
Interest expense
85
85
89
Other expense, net
29
32
41
(Loss) income before income taxes
(195
)
257
194
(Benefit) provision for income taxes
(74
)
70
74
Net (loss) income
$
(121
)
$
187
$
120
(LOSS) EARNINGS PER SHARE ATTRIBUTABLE TO
ARCONIC COMMON SHAREHOLDERS:
Basic(2)(3):
(Loss) earnings per share
$
(0.27
)
$
0.40
$
0.25
Average number of shares(3)(4)
445,298,284
470,798,121
482,854,550
Diluted(2)(3):
(Loss) earnings per share
$
(0.27
)
$
0.39
$
0.24
Average number of shares(3)(4)
445,298,284
489,059,798
501,960,573
(1)
Restructuring and other charges
for the quarter ended June 30, 2019 primarily included an
impairment of a long-lived asset group of $428, layoff costs of
$30, and other exit costs of $41.
(2)
In order to calculate both basic
and diluted earnings per share, preferred stock dividends declared
of $1 for the quarter ended March 31, 2019 need to be subtracted
from Net income.
(3)
For the quarter ended June 30,
2019, the diluted average number of shares does not include any
share equivalents (19 million) related to outstanding employee
stock options and awards and shares underlying outstanding
convertible debt (acquired through the acquisition of RTI
International Metals, Inc (“RTI”)) as their effect was
anti-dilutive. For the quarters ended March 31, 2019 and June 30,
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 and 19 million, respectively)
associated with outstanding employee stock options and awards and
shares underlying outstanding convertible debt (acquired through
the acquisition of RTI).
(4)
Basic and diluted average number
of shares for the quarters ended June 30, 2019 and March 31, 2019
reflect the impact of the accelerated share repurchase programs of
the Company’s common stock.
Arconic and subsidiaries
Statement of Consolidated Operations
(unaudited)
(in millions, except per-share and
share amounts)
Six months ended
June 30, 2019
June 30, 2018
Sales
$
7,232
$
7,018
Cost of goods sold (exclusive of expenses
below)
5,757
5,671
Selling, general administrative, and other
expenses
356
330
Research and development expenses
39
52
Provision for depreciation and
amortization
276
286
Restructuring and other charges(1)
511
22
Operating income
293
657
Interest expense(2)
170
203
Other expense, net
61
61
Income before income taxes
62
393
(Benefit) provision for income taxes
(4
)
130
Net income
$
66
$
263
EARNINGS PER SHARE ATTRIBUTABLE TO ARCONIC
COMMON SHAREHOLDERS:
Basic(3)(4):
Earnings per share
$
0.14
$
0.54
Average number of shares(4)(5)
458,005,369
482,622,069
Diluted(3)(4):
Earnings per share
$
0.14
$
0.53
Average number of shares(4)(5)
462,099,059
502,452,369
Common stock outstanding at the end of the
period(5)
440,087,693
482,891,826
(1)
Restructuring and other charges
for the six months ended June 30, 2019 primarily included an
impairment of a long-lived asset group of $428, layoff costs of
$95, and other exit costs of $46, 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.
(2)
Interest expense for the six
months ended June 30, 2018 included $19 related to the early
redemption of the Company’s then 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 six months ended June 30, 2019 and June 30, 2018 need
to be subtracted from Net income.
(4)
For the six months ended June 30,
2019, the difference between the respective diluted average number
of shares and the respective basic average number of shares related
to share equivalents (4 million) associated with outstanding
employee stock options and awards. For the six months ended June
30, 2018, the difference between the respective diluted average
number of shares and the respective basic average number of shares
related to share equivalents (20 million) associated with
outstanding employee stock options and awards and shares underlying
outstanding convertible debt (acquired through the acquisition of
RTI).
(5)
Basic and diluted average number
of shares and Common stock outstanding at the end of the period for
the six months ended June 30, 2019 reflect the impact of the
accelerated share repurchase programs of the Company’s common
stock.
Arconic and subsidiaries
Consolidated Balance Sheet
(unaudited)
(in millions)
June 30, 2019
December 31, 2018
Assets
Current assets:
Cash and cash equivalents
$
1,357
$
2,277
Receivables from customers, less
allowances of $4 in 2019 and 2018
1,155
1,047
Other receivables
640
451
Inventories
2,606
2,492
Prepaid expenses and other current
assets
260
314
Total current assets
6,018
6,581
Properties, plants, and equipment,
net(1)(2)
5,517
5,704
Goodwill
4,500
4,500
Deferred income taxes
568
573
Intangibles, net(2)
686
919
Other noncurrent assets(1)(2)
624
416
Total assets
$
17,913
$
18,693
Liabilities
Current liabilities:
Accounts payable, trade
$
2,095
$
2,129
Accrued compensation and retirement
costs
384
370
Taxes, including income taxes
116
118
Accrued interest payable
113
113
Other current liabilities(1)
479
356
Short-term debt
434
434
Total current liabilities
3,621
3,520
Long-term debt, less amount due within one
year
5,901
5,896
Accrued pension benefits
2,079
2,230
Accrued other postretirement benefits
641
723
Other noncurrent liabilities and deferred
credits(1)
805
739
Total liabilities
13,047
13,108
Equity
Arconic shareholders’ equity:
Preferred stock
55
55
Common stock(3)
440
483
Additional capital(3)
7,484
8,319
Accumulated deficit(1)
(256
)
(358
)
Accumulated other comprehensive loss
(2,869
)
(2,926
)
Total Arconic shareholders’ equity
4,854
5,573
Noncontrolling interests
12
12
Total equity
4,866
5,585
Total liabilities and equity
$
17,913
$
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)
In the second quarter of 2019,
the Company recorded an impairment charge of $428 related to a
long-lived asset group. The impairment charge impacted properties,
plant and equipment; intangible assets; and certain other
noncurrent assets by $198, $197 and $33, respectively.
(3)
Reflects the impact of the
accelerated share repurchase programs of the Company’s common
stock.
Arconic and subsidiaries
Statement of Consolidated Cash Flows
(unaudited)
(in millions)
Six months ended June
30,
2019
2018
Operating activities
Net income
$
66
$
263
Adjustments to reconcile net income to
cash used for operations:
Depreciation and amortization
276
286
Deferred income taxes
(78
)
47
Restructuring and other charges
511
22
Net loss from investing activities—asset
sales
4
5
Net periodic pension benefit cost
58
71
Stock-based compensation
27
29
Other
14
50
Changes in assets and liabilities,
excluding effects of acquisitions, divestitures, and foreign
currency translation adjustments:
(Increase) in receivables
(743
)
(709
)
(Increase) in inventories
(117
)
(220
)
Decrease in prepaid expenses and other
current assets
18
8
(Decrease) increase in accounts payable,
trade
(29
)
218
(Decrease) in accrued expenses
(46
)
(84
)
Increase in taxes, including income
taxes
41
37
Pension contributions
(140
)
(237
)
(Increase) in noncurrent assets
(5
)
(4
)
(Decrease) in noncurrent liabilities
(9
)
(42
)
Cash used for operations
(152
)
(260
)
Financing Activities
Net change in short-term borrowings
(original maturities of three months or less)
—
5
Additions to debt (original maturities
greater than three months)
226
300
Payments on debt (original maturities
greater than three months)
(226
)
(801
)
Premiums paid on early redemption of
debt
—
(17
)
Proceeds from exercise of employee stock
options
11
13
Dividends paid to shareholders
(39
)
(60
)
Repurchases of common stock(1)
(900
)
—
Other
(14
)
(17
)
Cash used for financing
activities
(942
)
(577
)
Investing Activities
Capital expenditures
(304
)
(288
)
Proceeds from the sale of assets and
businesses
12
5
Sales of investments
47
9
Cash receipts from sold receivables
417
420
Other
(1
)
—
Cash provided from investing
activities
171
146
Effect of exchange rate changes on
cash, cash equivalents and restricted cash
1
(2
)
Net change in cash, cash equivalents and
restricted cash
(922
)
(693
)
Cash, cash equivalents and restricted cash
at beginning of period
2,282
2,153
Cash, cash equivalents and restricted
cash at end of period
$
1,360
$
1,460
(1)
For the six months ended June 30,
2019, Arconic repurchased 45,451,404 shares of its common stock for
$900 through multiple accelerated share repurchase agreements with
JPMorgan Chase Bank pursuant to the share repurchase programs
previously authorized by its Board of Directors.
Arconic and subsidiaries
Segment Information (unaudited)
(in millions)
1Q18
2Q18
3Q18
4Q18
2018
1Q19
2Q19
Engineered
Products and Solutions:
Third-party sales
$
1,426
$
1,474
$
1,445
$
1,487
$
5,832
$
1,502
$
1,565
Segment operating profit
$
209
$
224
$
235
$
216
$
884
$
253
$
286
Segment operating profit margin
14.7
%
15.2
%
16.3
%
14.5
%
15.2
%
16.8
%
18.3
%
Provision for depreciation and
amortization
$
65
$
65
$
65
$
64
$
259
$
64
$
62
Restructuring and other charges
$
1
$
8
$
16
$
46
$
71
$
14
$
442
Global Rolled
Products:
Third-party sales
$
1,481
$
1,573
$
1,547
$
1,487
$
6,088
$
1,503
$
1,577
Intersegment sales
$
57
$
61
$
44
$
45
$
207
$
55
$
55
Segment operating profit(1)
$
124
$
111
$
77
$
81
$
393
$
107
$
145
Segment operating profit margin
8.4
%
7.1
%
5.0
%
5.4
%
6.5
%
7.1
%
9.2
%
Provision for depreciation and
amortization
$
56
$
59
$
56
$
64
$
235
$
54
$
54
Restructuring and other charges
$
(1
)
$
2
$
2
$
(159
)
$
(156
)
$
6
$
2
Third-party aluminum shipments (kmt)
322
330
330
319
1,301
331
367
Transportation
and Construction Solutions:
Third-party sales
$
537
$
562
$
530
$
497
$
2,126
$
535
$
548
Segment operating profit
$
67
$
97
$
77
$
63
$
304
$
87
$
107
Segment operating profit margin
12.5
%
17.3
%
14.5
%
12.7
%
14.3
%
16.3
%
19.5
%
Provision for depreciation and
amortization
$
13
$
12
$
12
$
13
$
50
$
13
$
13
Restructuring and other charges
$
—
$
—
$
—
$
1
$
1
$
9
$
25
Reconciliation of Total segment
operating profit to Consolidated income before income
taxes:
Total segment operating profit
$
400
$
432
$
389
$
360
$
1,581
$
447
$
538
Unallocated amounts:
Restructuring and other charges
(7
)
(15
)
2
11
(9
)
(12
)
(499
)
Corporate expense(2)
(60
)
(93
)
(46
)
(48
)
(247
)
(61
)
(120
)
Consolidated operating income (loss)
333
324
345
323
1,325
374
(81
)
Interest expense(3)
(114
)
(89
)
(88
)
(87
)
(378
)
(85
)
(85
)
Other expense, net
(20
)
(41
)
(8
)
(10
)
(79
)
(32
)
(29
)
Consolidated income (loss) before income
taxes
$
199
$
194
$
249
$
226
$
868
$
257
$
(195
)
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. For the quarter ended June 30, 2019, Corporate
expense included $25 of costs associated with ongoing environmental
remediation, $16 of costs associated with the planned separation of
Arconic, $9 of costs associated with negotiation of the collective
bargaining agreement with the United Steelworkers (USW); $9
impairment of assets of the energy business; and $4 of costs
related to a fire at a fasteners plant.
(3)
For the quarter ended March 31,
2018, Interest expense included $19 related to the early redemption
of the Company’s then 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
Six months ended
June 30,
2019
March 31,
2019
June 30,
2018
June 30,
2019
June 30,
2018
Net (loss) income
$
(121
)
$
187
$
120
$
66
$
263
Diluted (loss) earnings per share
(EPS)
$
(0.27
)
$
0.39
$
0.24
$
0.14
$
0.53
Special items:
Restructuring and other charges
499
12
15
511
22
Discrete tax items(1)
(36
)
1
21
(35
)
23
Other special items(2)
41
12
42
53
67
Tax impact(3)
(114
)
(4
)
(13
)
(118
)
(21
)
Net income excluding Special items
$
269
$
208
$
185
$
477
$
354
Diluted EPS excluding Special items
$
0.58
$
0.43
$
0.37
$
1.01
$
0.71
Average number of shares - diluted EPS
excluding Special items(4)
463,970,027
489,059,798
501,960,573
476,600,574
502,452,369
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 June 30,
2019, a benefit associated with the deduction of foreign taxes that
were previously claimed as a U.S. foreign tax credit ($25), a
benefit to remeasure certain deferred tax assets as a result of a
foreign tax rate change ($12), and a net charge for a number of
small items ($1);
•
for the quarter ended March 31,
2019, a charge for a number of small items ($1);
•
for the quarter ended June 30,
2018, charges resulting from the Company’s then ongoing analysis of
the U.S. Tax Cuts and Jobs Acts of 2017 related to an increase in
the provisional estimate of the one-time transition tax ($18) and
Alternative Minimum Tax (AMT) credits expected to be refunded upon
filing the 2018 tax return that will result in no benefit under
government sequestration ($3);
•
for the six months ended June 30,
2019, a benefit associated with the deduction of foreign taxes that
were previously claimed as a U.S. foreign tax credit ($25), a
benefit for foreign tax rate changes ($12), and a net charge for a
number of small items ($2); and
•
for the six months ended June 30,
2018, charges resulting from the Company’s then ongoing analysis of
the U.S. Tax Cuts and Jobs Acts of 2017 related an increase in the
provisional estimate of the one-time transition tax ($18) and AMT
credits expected to be refunded upon filing the 2018 tax return
that will result in no benefit under government sequestration ($3),
and a charge for a number of small items ($2).
(2)
Other special items for each
period included the following:
•
for the quarter ended June 30,
2019, a favorable tax impact resulting from the difference between
Arconic’s consolidated estimated annual effective tax rate and the
statutory rate applicable to special items ($32), costs associated
with ongoing environmental remediation ($25), costs associated with
the planned separation of Arconic ($16), costs associated with
negotiation of the collective bargaining agreement with the USW
($9), an impairment of assets of the energy business ($9), an
unfavorable tax impact related to the interim period treatment of
operational losses in certain foreign jurisdictions for which no
tax benefit was recognized ($7), costs related to a fire at a
fasteners plant ($4), and legal and other advisory costs related to
Grenfell Tower ($3);
•
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 June 30,
2018, costs related to settlements of certain customer claims
primarily related to product introductions ($38) and legal and
other advisory costs related to Grenfell Tower ($4);
•
for the six months ended June 30,
2019, a favorable tax impact resulting from the difference between
Arconic’s consolidated estimated annual effective tax rate and the
statutory rate applicable to special items ($33), costs associated
with ongoing environmental remediation ($25), costs associated with
the planned separation of Arconic ($19), costs associated with
negotiation of the collective bargaining agreement with the USW
($9), an unfavorable tax impact related to the interim period
treatment of operational losses in certain foreign jurisdictions
for which no tax benefit was recognized ($9), an impairment of
assets of the energy business ($9), strategy and portfolio review
costs ($6), legal and other advisory costs related to Grenfell
Tower ($5), and costs related to a fire at a fasteners plant ($4);
and
•
for the six months ended June 30,
2018, costs related to settlements of certain customer claims
primarily related to product introductions ($38), costs related to
the early redemption of the Company’s then outstanding 5.720%
Senior Notes due 2019 ($19), legal and other advisory costs related
to Grenfell Tower ($9), 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 2019 included the impact of the accelerated share repurchase
programs of the Company’s common stock.
Operational Tax Rate
Quarter ended June 30,
2019
Six months ended June 30,
2019
As reported
Special
items(1)
As adjusted
As reported
Special
items(1)
As adjusted
(Loss) income before income taxes
$
(195
)
$
565
$
370
$
62
$
588
$
650
(Benefit) provision for income taxes
(74
)
175
101
(4
)
177
173
Operational tax rate
37.9
%
27.3
%
(6.5
)%
26.6
%
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
June 30,
Quarter ended
March 31,
Six months ended
June 30,
2019
2018
2019
2018
2019
2018
Arconic
Sales – Arconic
$
3,691
$
3,573
$
3,541
$
3,445
$
7,232
$
7,018
Less:
Sales – Tennessee packaging
—
46
—
43
—
89
Sales – Eger forgings
—
9
—
10
—
19
Sales – Latin America extrusions
—
—
—
25
—
25
Aluminum price impact
(136
)
n/a
(59
)
n/a
(195
)
n/a
Foreign currency impact
(35
)
n/a
(55
)
n/a
(90
)
n/a
Arconic Organic revenue
$
3,862
$
3,518
$
3,655
$
3,367
$
7,517
$
6,885
Engineered Products
and Solutions (EP&S)
Sales
$
1,565
$
1,474
$
1,502
$
1,426
$
3,067
$
2,900
Less:
Sales – Eger forgings
—
9
—
10
—
19
Aluminum price impact
(4
)
n/a
(2
)
n/a
(6
)
n/a
Foreign currency impact
(11
)
n/a
(13
)
n/a
(24
)
n/a
EP&S Organic revenue
$
1,580
$
1,465
$
1,517
$
1,416
$
3,097
$
2,881
Global Rolled
Products (GRP)
Sales
$
1,577
$
1,573
$
1,503
$
1,481
$
3,080
$
3,054
Less:
Sales – Tennessee packaging
—
46
—
43
—
89
Aluminum price impact
(112
)
n/a
(58
)
n/a
(170
)
n/a
Foreign currency impact
(11
)
n/a
(26
)
n/a
(37
)
n/a
GRP Organic revenue
$
1,700
$
1,527
$
1,587
$
1,438
$
3,287
$
2,965
Transportation and
Construction Solutions (TCS)
Sales
$
548
$
562
$
535
$
537
$
1,083
$
1,099
Less:
Sales – Latin America extrusions
—
—
—
25
—
25
Aluminum price impact
(20
)
n/a
1
n/a
(19
)
n/a
Foreign currency impact
(13
)
n/a
(16
)
n/a
(29
)
n/a
TCS Organic revenue
$
581
$
562
$
550
$
512
$
1,131
$
1,074
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. The revenue from a small
manufacturing facility that was divested in the second quarter of
2019 was not material and therefore is included in Organic
revenue.
Arconic and subsidiaries
Calculation of Financial Measures
(unaudited), continued
(dollars in millions)
Adjusted free cash flow
Quarter ended
Six months ended
June 30,
2019
March 31,
2019
June 30,
2018
June 30,
2019
June 30,
2018
Cash provided from (used for)
operations
$
106
$
(258
)
$
176
$
(152
)
$
(260
)
Cash receipts from sold receivables
257
160
284
417
420
Capital expenditures
(136
)
(168
)
(171
)
(304
)
(288
)
Adjusted free cash flow
$
227
$
(266
)
$
289
$
(39
)
$
(128
)
There has been no change in the net cash
funding in the sale of accounts receivable program in the second
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
June 30,
2019
March 31,
2019
December 31,
2018
September 30,
2018
June 30,
2018
Short-term debt
$
434
$
435
$
434
$
42
$
45
Long-term debt, less amount due within one
year
5,901
5,899
5,896
6,315
6,312
Total debt
$
6,335
$
6,334
$
6,330
$
6,357
$
6,357
Less: Cash and cash equivalents
1,357
1,319
2,277
1,535
1,455
Net debt
$
4,978
$
5,015
$
4,053
$
4,822
$
4,902
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
Six months ended
June 30,
2019
March 31,
2019
June 30,
2018
June 30,
2019
June 30,
2018
Operating (loss) income
$
(81
)
$
374
$
324
$
293
$
657
Special items:
Restructuring and other charges
499
12
15
511
22
Costs associated with planned
separation
16
3
—
19
—
Environmental remediation
25
—
—
25
—
Collective bargaining agreement
negotiation
9
—
—
9
—
Impairment of energy business assets
9
—
—
9
—
Legal and other advisory costs related to
Grenfell Tower
3
2
4
5
9
Strategy and portfolio review costs
—
6
—
6
—
Fasteners plant fire costs
4
—
—
4
—
Settlements of certain customer claims
primarily related to product introductions
—
—
38
—
38
Operating income excluding Special
items
$
484
$
397
$
381
$
881
$
726
Sales
$
3,691
$
3,541
$
3,573
$
7,232
$
7,018
Operating income margin, excluding Special
items
13.1
%
11.2
%
10.7
%
12.2
%
10.3
%
Operating income excluding Special items
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 (loss)
income determined under GAAP as well as Operating income excluding
Special items.
Arconic and subsidiaries
Calculation of Financial Measures
(unaudited), continued
(dollars in millions)
Return on Net Assets (RONA)
Quarter ended
Quarter ended
Six months ended
June 30,
March 31,
June 30,
2019
2018
2019
2018
2019
2018
Net income
$
(121
)
$
120
$
187
$
143
$
66
$
263
Special items(1)
390
65
21
26
411
91
Net income excluding Special items
269
185
208
169
477
354
Annualized net income excluding Special
items
1,076
740
832
676
954
708
Net Assets:
June 30,
2019
June 30,
2018
March 31,
2019
March 31,
2018
June 30,
2019
June 30,
2018
Add: Receivables from customers, less
allowances
$
1,155
$
1,159
$
1,170
$
1,179
$
1,155
$
1,159
Add: Deferred purchase program(2)
426
313
430
320
426
313
Add: Inventories
2,606
2,659
2,612
2,648
2,606
2,659
Less: Accounts payable, trade
2,095
2,024
2,193
1,874
2,095
2,024
Working capital
2,092
2,107
2,019
2,273
2,092
2,107
Properties, plants, and equipment, net
(PP&E)
5,517
5,582
5,727
5,628
5,517
5,582
Net assets - total
$
7,609
$
7,689
$
7,746
$
7,901
$
7,609
$
7,689
RONA
14.1
%
9.6
%
10.7
%
8.6
%
12.5
%
9.2
%
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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190802005221/en/
Investor Contact Paul T. Luther (212) 836-2758
Paul.Luther@arconic.com
Media Contact Esra Ozer (412) 553-2666
Esra.Ozer@arconic.com
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