Howmet (HWM) Up 3.6% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Howmet (HWM). Shares have added about 3.6% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Howmet due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Howmet Q4 Earnings Beat Estimates, Revenues Increase Y/Y
Howmet’s fourth-quarter 2023 adjusted earnings of 53 cents per share beat the Zacks Consensus Estimate of 46 cents. The bottom line improved 39.5% year over year.
Total revenues of $1.73 billion surpassed the consensus estimate of $1.65 billion. The top line increased 14.4% from the year-ago quarter. The increase was backed by an improved commercial aerospace market.
Segmental Details
The Engine Products segment’s revenues totaled $852 million, representing 49.2% of net revenues in the quarter under review. On a year-over-year basis, the segment’s revenues increased 16%, driven by growth in the commercial aerospace, defense aerospace, industrial gas turbine, and oil and gas markets. The Zacks Consensus Estimate for Engine Products revenues was pegged at $811 million.
The Fastening Systems segment generated revenues of $360 million, accounting for 20.8% of net revenues in the reported quarter. Revenues increased 26% year over year, driven by growth in the commercial aerospace market, including emerging wide-body aircraft recovery and the commercial transportation market. The consensus estimate for Fastening Systems’ revenues was pegged at $345 million.
The Engineered Structures segment’s revenues, representing 14.1% of net revenues, increased 6% year over year to $244 million. The results benefited from growth in the commercial aerospace market, including emerging wide-body aircraft recovery. The Zacks Consensus Estimate for Engineered Structures’ revenues was pegged at $227 million.
The Forged Wheels segment’s revenues totaled $275 million, representing 15.9% of net revenues in the quarter under review. On a year-over-year basis, the segment’s revenues increased 3%, driven by growth in the commercial transportation market. The consensus estimate for Forged Wheels’ revenues was pegged at $273 million.
Margin Profile
In the reported quarter, Howmet’s cost of goods sold increased 14.4% year over year to $1.2 billion. Selling, general, administrative and other expenses increased 31.8% year over year to $83 million. Research and development expenses were $9 million.
Adjusted EBITDA, excluding special items, in the reported quarter was $409 million, up 23.6% year over year. Adjusted EBITDA margin increased 170 basis points year over year to 23.6%. Operating income increased 48.2% year over year to $326 million. The operating income margin in the quarter was 18.8%, up 430 basis points year over year. Net interest expenses totaled $52 million, down 8.8% from the year-ago quarter.
Balance Sheet and Cash Flow
Exiting the fourth quarter of 2023, Howmet had cash and cash equivalents of $610 million compared with $791 million at the end of December 2022. Long-term debt (less amount due within one year) was $3.5 billion compared with $4.2 billion at the end of fourth-quarter 2022.
In 2023, Howmet generated net cash of $901 million from operating activities compared with $733 million generated in the year-ago period. Capital spending totaled $219 million compared with $193 million spent a year ago. Free cash flow was $682 million in the period.
Howmet paid out dividends of $73 million in 2023 compared with $44 million in the year-ago period. Also, it repurchased shares worth $250 million in the year compared with the $400 million buyback made a year ago.
Q1 Outlook
For the first quarter of 2024, Howmet expects revenues to be $1.73-$1.75 billion. The Zacks Consensus Estimate for the same is pegged at $1.72 billion. Adjusted EBITDA is expected to be between $395 million and $405 million, while the margin is anticipated to be 22.8-23.1%. Adjusted earnings per share are estimated to be 50-52 cents. The midpoint of the guided range — 51 cents — lies above the consensus estimate of adjusted earnings per share of 50 cents.
2024 Outlook
Howmet predicts revenues to be $7.0-$7.2 billion. The Zacks Consensus Estimate for the same is $7.05 billion. Adjusted EBITDA is estimated to be $1.60-$1.67 billion. The margin is projected to be 22.9-23.2%.
Adjusted earnings per share are forecasted in the band of $2.1-$2.2 per share. The consensus estimate of adjusted earnings per share is $2.17. Free cash flow is expected to be $700-$770 million for 2024.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision.
VGM Scores
Currently, Howmet has a great Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Howmet has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Howmet is part of the Zacks Engineering - R and D Services industry. Over the past month, Aecom Technology (ACM), a stock from the same industry, has gained 1.8%. The company reported its results for the quarter ended December 2023 more than a month ago.
Aecom reported revenues of $3.9 billion in the last reported quarter, representing a year-over-year change of +15.3%. EPS of $1.05 for the same period compares with $0.86 a year ago.
Aecom is expected to post earnings of $1.05 per share for the current quarter, representing a year-over-year change of +14.1%. Over the last 30 days, the Zacks Consensus Estimate has changed +1.9%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Aecom. Also, the stock has a VGM Score of B.
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