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.
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
Engineered
Products and Solutions:
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
Global Rolled
Products:
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
Transportation
and Construction Solutions:
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
Specialitems(1)
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 endedMarch 31,
Quarter endedDecember
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 (TCS)
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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190430005554/en/
InvestorsPaul T. Luther(212)
836-2758Paul.Luther@arconic.com
MediaEsra Ozer(412) 553-2666Esra.Ozer@arconic.com
Arconic (NYSE:ARNC)
Historical Stock Chart
From Aug 2024 to Sep 2024
Arconic (NYSE:ARNC)
Historical Stock Chart
From Sep 2023 to Sep 2024