First Quarter 2018 Highlights
- Revenue of $3.4 billion, up 8% year over year; organic revenue1 up 4% year over year
- Net income of $143 million, or $0.29 per share, versus net income of $322 million, or $0.65 per share, in the first quarter of 2017
- Net income excluding special items of $169 million, or $0.34 per share, versus $169 million, or $0.33 per share, in the first quarter of 2017
- Operating income of $333 million, up 18% year over year
- Operating income excluding special items of $345 million, down 12% year over year
Guidance
- Updated Full Year 2018 Guidance*: Revenue $13.7-$14.0 billion, Earnings Per Share Excluding Special Items $1.17-$1.27, Free Cash Flow ~$250 million
Key Announcements
- Completed $500 million early redemption of debt due in February 2019
- Targets completion of strategy and portfolio work in the third quarter 2018
___________________________________
* 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 2018 Guidance.”
Arconic Inc. (NYSE: ARNC) today reported first quarter 2018 results, for
which the Company reported revenues of $3.4 billion, up 8% year over
year. Organic revenue1 was up 4% year over year, driven
by higher volumes in the aerospace engines, automotive, commercial
transportation, building and construction, industrial and defense
markets, somewhat offset by declines in aerospace airframe production
mix and the industrial gas turbine market.
Net income in the first quarter was $143 million, or $0.29 per share.
These results include $26 million in special items, principally due to
costs associated with the early redemption of debt and
restructuring-related charges. First quarter 2017 net income was $322
million, or $0.65 per share. Net income excluding special items was $169
million, or $0.34 per share, versus $169 million, or $0.33 per share, in
the first quarter of 2017.
First quarter 2018 Operating income was $333 million, up 18% year over
year. Operating income excluding special items was $345 million, down
12% year over year, as the unfavorable impacts of higher aluminum
prices, performance shortfalls in our Rings, Disks and Global Rolled
Products operations, unfavorable aerospace wide-body production mix, and
the inventory impact of the new pension accounting standard more than
offset volume gains and net cost savings.
Arconic Chief Executive Officer Chip Blankenship said, “In the first
quarter, Arconic delivered solid organic revenue growth and free cash
flow in line with expectations. Operating income was negatively impacted
by higher aluminum prices and performance shortfalls in our Rings, Disks
and Global Rolled Products operations. During the quarter, I visited
several sites and was impressed by our dedicated talent and world-class
facilities. However, it is clear that we have areas in need of
operational improvement. To ensure all businesses execute consistently,
we are deploying targeted capital and expertise to close gaps. In
addition, we are updating our full year 2018 guidance due to rising
aluminum prices and my deeper understanding of our operations.”
Blankenship continued, “2018 is a transition year during which we are
making investments in our future to position the company for long-term
success and shareholder value creation.”
Arconic ended the first quarter 2018 with cash on hand of $1.2 billion.
Cash used for operations was $436 million, driven by the normal first
quarter build in working capital and semi-annual interest payments, as
well as higher pension contributions; cash used for financing activities
totaled $542 million, reflecting the payment of $517 million for the
early redemption of debt; and cash provided from investing activities
was $29 million. Free Cash Flow for the quarter was negative $417
million, which included $124 million of incremental pension
contributions compared to last year.
The Company reduced its pension liability by $315 million in the first
quarter 2018 driven by cash contributions and as a result of its
decision to freeze U.S. defined benefit pension plans for all U.S.-based
salaried and non-bargained hourly employees.
First Quarter 2018 Segment Performance
As of the first quarter of 2018, Arconic’s segment reporting measure has
changed from Adjusted EBITDA to Segment operating profit.
Engineered Products and Solutions (EP&S)
EP&S reported revenue of $1.5 billion, an increase of 4% year over year.
Organic revenue1 was up 2% as volume growth in aerospace
engines, defense and industrial more than offset the continued downturn
in the industrial gas turbine market and headwinds in aerospace airframe
production mix, related to fastening systems. Segment operating profit
was $221 million, down $26 million year over year, as performance
shortfalls in Rings and Disks, unfavorable product mix, and higher input
costs more than offset the strength in aerospace engines. Segment
operating margin was 14.3%, down 230 basis points year over year.
Global Rolled Products (GRP)
GRP reported revenue of $1.4 billion, an increase of 9% year over year.
Organic revenue1 was up 4%. Segment operating profit was $112
million, down $24 million year over year, driven by higher aluminum
prices and unfavorable aerospace wide-body production mix, partially
offset by higher automotive volume. Segment operating margin was 8.2%,
down 270 basis points year over year, including a 170 basis point
negative impact of higher aluminum prices.
Transportation and Construction Solutions (TCS)
TCS delivered revenue of $537 million, an increase of 18% year over
year. Organic revenue1 was up 13%. Segment operating profit
was $67 million, down $1 million year over year, as higher volume in
commercial transportation and building and construction, favorable
foreign currency movements, and net cost savings were more than offset
by headwinds that included higher aluminum prices and unfavorable
product price and mix. Segment operating margin was 12.5%, down 240
basis points year over year, including a 350 basis point negative impact
of higher aluminum prices.
Early Debt Redemption
As disclosed on March 7, 2018, Arconic completed the previously
announced early redemption of all of its 5.72% Notes due in February
2019 in the aggregate principal amount of $500 million.
Strategy and Portfolio Review
In January 2018, Arconic initiated a review of its strategy and
portfolio. The Company is targeting to complete the work in the third
quarter 2018.
Updated Full Year 2018 Guidance*
Arconic is updating its full year 2018 guidance:
| 4Q 2017 | Updated 1Q 2018 | |||||
| Revenue | $13.4-$13.7 billion | $13.7-$14.0 billion | ||||
| Earnings Per Share Excluding Special Items | $1.45-$1.55 | $1.17-$1.27 | ||||
| Free Cash Flow | ~$500 million | ~$250 million |
* Arconic has not provided a reconciliation of the forward-looking
financial measures of earnings per share excluding special items and
free cash flow to the most directly comparable financial measures
prepared in accordance with accounting principles generally accepted in
the United States of America (GAAP) because Arconic is unable to
quantify certain amounts that would be required to be included in the
GAAP measures without unreasonable efforts, and Arconic believes such
reconciliations would imply a degree of precision that would be
confusing or misleading to investors. In particular, reconciliations of
the forward-looking non-GAAP financial measures to the most directly
comparable GAAP measures 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 will hold its quarterly conference call at 10:00 AM Eastern
Time on April 30, 2018 to present first quarter 2018 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, automotive, commercial transportation and other end markets;
statements and guidance regarding future financial results or operating
performance; 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) deterioration in
global economic and financial market conditions generally; (b)
unfavorable changes in the markets served by Arconic; (c) 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;
(d) competition from new product offerings, disruptive technologies or
other developments; (e) political, economic, and regulatory risks
relating to Arconic’s global operations, including compliance with US
and foreign trade and tax laws, sanctions, embargoes and other
regulations; (f) manufacturing difficulties or other issues that impact
product performance, quality or safety; (g) 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; (h) the impact of cyber
attacks and potential information technology or data security breaches;
(i) changes in discount rates or investment returns on pension assets;
(j) the impact of changes in aluminum prices and foreign currency
exchange rates on costs and results; (k) the outcome of contingencies,
including legal proceedings, government or regulatory investigations,
and environmental remediation, which can expose Arconic to substantial
costs and liabilities; and (l) the other risk factors summarized in
Arconic’s Form 10-K for the year ended December 31, 2017 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 and on
our website at www.arconic.com under
the “Investors” section.
___________________________________
1
Organic revenue is U.S. GAAP revenue adjusted for
Tennessee Packaging (due to its planned phase-down), 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, | December 31, | March 31, | ||||||||||
| 2018 | 2017 | 2017 | ||||||||||
| Sales | $ | 3,445 | $ | 3,271 | $ | 3,192 | ||||||
| Cost of goods sold (exclusive of expenses below) | 2,768 | 2,623 | 2,458 | |||||||||
| Selling, general administrative, and other expenses | 172 | 146 | 217 | |||||||||
| Research and development expenses | 23 | 28 | 28 | |||||||||
| Provision for depreciation and amortization | 142 | 141 | 133 | |||||||||
| Impairment of goodwill | — | 719 | — | |||||||||
| Restructuring and other charges | 7 | 47 | 73 | |||||||||
| Operating income (loss)(1) | 333 | (433 | ) | 283 | ||||||||
| Interest expense(2) | 114 | 98 | 115 | |||||||||
| Other expense (income), net(1),(3) | 20 | (76 | ) | (316 | ) | |||||||
| Income (loss) before income taxes | 199 | (455 | ) | 484 | ||||||||
| Provision for income taxes | 56 | 272 | 162 | |||||||||
| Net income (loss) | $ | 143 | $ | (727 | ) | $ | 322 | |||||
|
EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO ARCONIC COMMON |
||||||||||||
| Basic(4)(5): | ||||||||||||
| Earnings (loss) per share | $ | 0.30 | $ | (1.51 | ) | $ | 0.69 | |||||
| Average number of shares(5) | 482,438,854 | 481,339,090 | 439,933,090 | |||||||||
| Diluted(4)(5): | ||||||||||||
| Earnings (loss) per share | $ | 0.29 | $ | (1.51 | ) | $ | 0.65 | |||||
| Average number of shares(5) | 502,924,068 | 481,339,090 | 499,453,809 | |||||||||
| Common stock outstanding at the end of the period | 482,819,135 | 481,416,537 | 440,770,899 | |||||||||
|
(1) |
In the first quarter of 2018, Arconic adopted changes issued by |
|
|
(2) |
Interest expense for the quarter ended March 31, 2018 included $19 |
|
|
(3) |
Other expense (income), net for the quarter ended December 31, |
|
|
(4) |
In order to calculate both basic and diluted earnings (loss) per |
|
|
(5) |
For the quarter ended March 31, 2018, the difference between the |
|
| Arconic and subsidiaries | |||||||||
| Consolidated Balance Sheet (unaudited) | |||||||||
| (in millions) | |||||||||
| March 31, | December 31, | ||||||||
| 2018 | 2017 | ||||||||
| Assets | |||||||||
| Current assets: | |||||||||
| Cash and cash equivalents | $ | 1,205 | $ | 2,150 | |||||
|
Receivables from customers, less allowances of $8 in 2018 and $8 in 2017 |
1,179 | 1,035 | |||||||
| Other receivables | 484 | 339 | |||||||
| Inventories | 2,648 | 2,480 | |||||||
| Prepaid expenses and other current assets | 379 | 374 | |||||||
|
Total current assets |
5,895 | 6,378 | |||||||
| Properties, plants, and equipment, net | 5,628 | 5,594 | |||||||
| Goodwill | 4,573 | 4,535 | |||||||
| Deferred income taxes | 675 | 743 | |||||||
| Intangibles, net | 990 | 987 | |||||||
| Other noncurrent assets | 458 | 481 | |||||||
| Total assets | $ | 18,219 | $ | 18,718 | |||||
| Liabilities | |||||||||
| Current liabilities: | |||||||||
| Accounts payable, trade | $ | 1,874 | $ | 1,839 | |||||
| Accrued compensation and retirement costs | 333 | 399 | |||||||
| Taxes, including income taxes | 83 | 75 | |||||||
| Accrued interest payable | 97 | 124 | |||||||
| Other current liabilities | 370 | 349 | |||||||
| Short-term debt | 45 | 38 | |||||||
| Total current liabilities | 2,802 | 2,824 | |||||||
| Long-term debt, less amount due within one year | 6,309 | 6,806 | |||||||
| Accrued pension benefits | 2,249 | 2,564 | |||||||
| Accrued other postretirement benefits | 833 | 841 | |||||||
| Other noncurrent liabilities and deferred credits | 744 | 759 | |||||||
| Total liabilities | 12,937 | 13,794 | |||||||
| Equity | |||||||||
| Arconic shareholders’ equity: | |||||||||
| Preferred stock | 55 | 55 | |||||||
| Common stock | 483 | 481 | |||||||
| Additional capital | 8,280 | 8,266 | |||||||
| Accumulated deficit | (1,164 | ) | (1,248 | ) | |||||
| Accumulated other comprehensive loss | (2,386 | ) | (2,644 | ) | |||||
| Total Arconic shareholders’ equity | 5,268 | 4,910 | |||||||
| Noncontrolling interests | 14 | 14 | |||||||
| Total equity | 5,282 | 4,924 | |||||||
| Total liabilities and equity | $ | 18,219 | $ | 18,718 | |||||
| Arconic and subsidiaries | |||||||||
| Statement of Consolidated Cash Flows (unaudited) | |||||||||
| (in millions) | |||||||||
| Three months ended March 31, | |||||||||
| 2018 | 2017 | ||||||||
| Operating activities | |||||||||
| Net income | $ | 143 | $ | 322 | |||||
| Adjustments to reconcile net income to cash used for operations: | |||||||||
| Depreciation and amortization | 142 | 133 | |||||||
| Deferred income taxes | 18 | 20 | |||||||
| Restructuring and other charges | 7 | 73 | |||||||
| Net loss (gain) from investing activities—asset sales | 3 | (349 | ) | ||||||
| Net periodic pension benefit cost | 41 | 54 | |||||||
| Stock-based compensation | 15 | 28 | |||||||
| Other | 49 | 18 | |||||||
|
Changes in assets and liabilities, excluding effects of acquisitions, divestitures, and foreign currency translation adjustments: |
|||||||||
| (Increase) in receivables(1) | (403 | ) | (394 | ) | |||||
| (Increase) in inventories | (141 | ) | (85 | ) | |||||
| (Increase) decrease in prepaid expenses and other current assets | (12 | ) | 20 | ||||||
| Increase (decrease) in accounts payable, trade | 14 | (122 | ) | ||||||
| (Decrease) in accrued expenses | (118 | ) | (112 | ) | |||||
| Increase in taxes, including income taxes | 8 | 111 | |||||||
| Pension contributions | (177 | ) | (53 | ) | |||||
| Decrease (increase) in noncurrent assets | 1 | (34 | ) | ||||||
| (Decrease) in noncurrent liabilities | (26 | ) | (25 | ) | |||||
| Cash used for operations | (436 | ) | (395 | ) | |||||
| Financing Activities | |||||||||
|
Net change in short-term borrowings (original maturities of three months or less) |
5 | 8 | |||||||
| Additions to debt (original maturities greater than three months) | 150 | 360 | |||||||
| Premiums paid on early redemption of debt | (17 | ) | — | ||||||
| Payments on debt (original maturities greater than three months) | (651 | ) | (360 | ) | |||||
| Proceeds from exercise of employee stock options | 12 | 22 | |||||||
| Dividends paid to shareholders | (30 | ) | (45 | ) | |||||
| Distributions to noncontrolling interests | — | (14 | ) | ||||||
| Other | (11 | ) | (14 | ) | |||||
| Cash used for financing activities | (542 | ) | (43 | ) | |||||
| Investing Activities | |||||||||
| Capital expenditures | (117 | ) | (103 | ) | |||||
| Proceeds from the sale of assets and businesses | — | (10 | ) | ||||||
| Sales of investments(2) | 9 | 888 | |||||||
| Cash receipts from sold receivables(1) | 136 | 95 | |||||||
| Other(3) | 1 | 240 | |||||||
| Cash provided from investing activities | 29 | 1,110 | |||||||
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash (4) |
4 | 4 | |||||||
| Net change in cash, cash equivalents and restricted cash(4) | (945 | ) | 676 | ||||||
| Cash, cash equivalents and restricted cash at beginning of year(4) | 2,153 | 1,878 | |||||||
|
Cash, cash equivalents and restricted cash at end of period (4) |
$ | 1,208 | $ | 2,554 | |||||
| (1) |
In the first quarter of 2018, Arconic adopted changes issued by |
|
| (2) |
In the first quarter of 2017, Arconic sold 23,353,000 of its |
|
| (3) |
In the first quarter of 2017, Other investing activities included |
|
| (4) |
In the first quarter of 2018, Arconic adopted changes issued by |
|
| Arconic and subsidiaries | ||||||||||||||||||||||||
| Segment Information (unaudited) | ||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||
| 1Q17 | 2Q17 | 3Q17 | 4Q17 | 2017 | 1Q18 | |||||||||||||||||||
|
|
||||||||||||||||||||||||
| Third-party sales | $ | 1,487 | $ | 1,485 | $ | 1,477 | $ | 1,494 | $ | 5,943 | $ | 1,541 | ||||||||||||
| Segment operating profit | $ | 247 | $ | 250 | $ | 239 | $ | 228 | $ | 964 | $ | 221 | ||||||||||||
| Segment operating profit margin | 16.6 | % | 16.8 | % | 16.2 | % | 15.3 | % | 16.2 | % | 14.3 | % | ||||||||||||
| Provision for depreciation and amortization | $ | 64 | $ | 66 | $ | 68 | $ | 70 | $ | 268 | $ | 71 | ||||||||||||
| Impairment of goodwill | $ | — | $ | — | $ | — | $ | 719 | $ | 719 | $ | — | ||||||||||||
| Restructuring and other charges | $ | 6 | $ | 8 | $ | 10 | $ | 6 | $ | 30 | $ | 1 | ||||||||||||
|
|
||||||||||||||||||||||||
| Third-party sales | $ | 1,248 | $ | 1,271 | $ | 1,234 | $ | 1,247 | $ | 5,000 | $ | 1,366 | ||||||||||||
| Intersegment sales | $ | 34 | $ | 37 | $ | 36 | $ | 41 | $ | 148 | $ | 42 | ||||||||||||
| Segment operating profit | $ | 136 | $ | 133 | $ | 64 | $ | 91 | $ | 424 | $ | 112 | ||||||||||||
| Segment operating profit margin | 10.9 | % | 10.5 | % | 5.2 | % | 7.3 | % | 8.5 | % | 8.2 | % | ||||||||||||
| Provision for depreciation and amortization | $ | 50 | $ | 51 | $ | 52 | $ | 52 | $ | 205 | $ | 51 | ||||||||||||
| Restructuring and other charges | $ | 57 | $ | 17 | $ | 2 | $ | (4 | ) | $ | 72 | $ | (1 | ) | ||||||||||
|
|
||||||||||||||||||||||||
| Third-party sales | $ | 456 | $ | 504 | $ | 523 | $ | 528 | $ | 2,011 | $ | 537 | ||||||||||||
| Segment operating profit | $ | 68 | $ | 71 | $ | 74 | $ | 77 | $ | 290 | $ | 67 | ||||||||||||
| Segment operating profit margin | 14.9 | % | 14.1 | % | 14.1 | % | 14.6 | % | 14.4 | % | 12.5 | % | ||||||||||||
| Provision for depreciation and amortization | $ | 12 | $ | 12 | $ | 13 | $ | 13 | $ | 50 | $ | 13 | ||||||||||||
| Restructuring and other charges | $ | 3 | $ | 6 | $ | 2 | $ | 41 | $ | 52 | $ | — | ||||||||||||
|
Reconciliation of total segment operating profit to Consolidated income (loss) before income taxes: |
||||||||||||||||||||||||
| Total segment operating profit | $ | 451 | $ | 454 | $ | 377 | $ | 396 | $ | 1,678 | $ | 400 | ||||||||||||
| Unallocated amounts: | ||||||||||||||||||||||||
| Restructuring and other charges | (73 | ) | (26 | ) | (19 | ) | (47 | ) | (165 | ) | (7 | ) | ||||||||||||
| Impairment of goodwill | — | — | — | (719 | ) | (719 | ) | — | ||||||||||||||||
| Corporate expense | (95 | ) | (108 | ) | (48 | ) | (63 | ) | (314 | ) | (60 | ) | ||||||||||||
| Consolidated operating income (loss) | 283 | 320 | 310 | (433 | ) | 480 | 333 | |||||||||||||||||
| Interest expense(1) | (115 | ) | (183 | ) | (100 | ) | (98 | ) | (496 | ) | (114 | ) | ||||||||||||
| Other income (expense), net(2) | 316 | 132 | (38 | ) | 76 | 486 | (20 | ) | ||||||||||||||||
| Consolidated income (loss) before income taxes | $ | 484 | $ | 269 | $ | 172 | $ | (455 | ) | $ | 470 | $ | 199 | |||||||||||
|
In the first quarter of 2018, the Company changed its primary measure of segment performance from Adjusted EBITDA to Segment operating profit. Arconic’s definition of Segment operating profit is Operating income (loss) excluding Special items. Special items include Restructuring and other charges and Impairment of goodwill. Segment operating profit may not be comparable to similarly titled measures of other companies. Prior period amounts have been recast to conform to current period presentation. |
||
|
Segment operating profit also includes certain items which under the previous segment performance measure were recorded in Corporate, such as the impact of LIFO inventory accounting, metal price lag, intersegment profit eliminations, and derivative activities. |
||
|
The difference between certain segment totals and consolidated |
||
| (1) |
For the quarter ended June 30, 2017, Interest expense included $76 |
|
| (2) |
For the quarter ended March 31, 2017, Other income (expense), net |
|
| Arconic and subsidiaries | ||||||||||||
| Calculation of Financial Measures (unaudited) | ||||||||||||
| (in millions, except per-share amounts) | ||||||||||||
| Net income excluding Special items | Quarter ended | |||||||||||
|
March 31, |
December 31, |
March 31, |
||||||||||
| Net income (loss) | $ | 143 | $ | (727 | ) | $ | 322 | |||||
| Diluted earnings (loss) per share (EPS) | $ | 0.29 | $ | (1.51 | ) | $ | 0.65 | |||||
| Special items: | ||||||||||||
| Restructuring and other charges | 7 | 47 | 73 | |||||||||
| Discrete tax items(1) | 2 | 220 | 1 | |||||||||
| Other special items(2) | 25 | 612 | (325 | ) | ||||||||
| Tax impact(3) | (8 | ) | — | 98 | ||||||||
| Net income excluding Special items | $ | 169 | $ | 152 | $ | 169 | ||||||
| Diluted EPS excluding Special items | $ | 0.34 | $ | 0.31 | $ | 0.33 | ||||||
| Average number of shares – diluted EPS excluding Special items(4) | 502,924,068 | 502,109,950 | 460,207,783 | |||||||||
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 (loss) 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, 2018, a charge for a number of small
items ($2). -
for the quarter ended December 31, 2017, a charge resulting from the
enactment of the U.S. Tax Cuts and Jobs Acts of 2017 that principally
relates to the revaluation of U.S. deferred tax assets and liabilities
from 35% to 21% ($272), a charge for a reserve against a foreign
attribute resulting from the Company’s Delaware reincorporation ($23),
partially offset by a benefit for the reversal of state valuation
allowances ($69) and a benefit for a number of small items ($6); -
for the quarter ended March 31, 2017, a charge for a number of small
items ($1).
(2) Other special items included the following:
-
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); -
for the quarter ended December 31, 2017, an impairment of goodwill
related to the forgings and extrusions business ($719), a favorable
adjustment to the Firth Rixson earn-out ($81), a favorable adjustment
to a separation-related guarantee liability ($25), legal and other
advisory costs related to Grenfell Tower ($7), costs associated with
the Company’s Delaware reincorporation ($3), and a benefit for a
number of small tax items ($11); and -
for the quarter ended March 31, 2017, a gain on the sale of a portion
of Arconic’s investment in Alcoa Corporation common stock ($351),
costs associated with the separation of Alcoa Inc. ($18), proxy,
advisory and governance-related costs ($16), and a benefit for a
number of small tax items ($8).
| (3) |
The tax impact on special items is based on the applicable |
|
| (4) |
The average number of shares applicable to diluted EPS excluding |
|
|
For the quarter ended March 31, 2017, share equivalents associated |
||
| Operational Tax Rate | Quarter ended March 31, 2018 | ||||||||||
| As reported |
Special items (1) |
As adjusted | |||||||||
| Income before income taxes | $ | 199 | $ | 31 | $ | 230 | |||||
| Provision for income taxes | 56 | 5 | 61 | ||||||||
| Operational tax rate | 28.1 | % | 26.5 | % | |||||||
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 | Quarter ended | ||||||||||||||
|
March 31, |
March 31, |
December 31, |
December 31, |
|||||||||||||
|
Arconic |
||||||||||||||||
| Sales – Arconic | $ | 3,445 | $ | 3,192 | $ | 3,271 | $ | 2,967 | ||||||||
| Less: | ||||||||||||||||
| Sales – Tennessee packaging | 43 | 54 | 40 | 37 | ||||||||||||
| Sales – Fusina rolling mill | — | 45 | — | 37 | ||||||||||||
| Aluminum price impact | 109 | n/a | 124 | n/a | ||||||||||||
| Foreign currency impact | 66 | n/a | 40 | n/a | ||||||||||||
| Arconic Organic revenue | $ | 3,227 | $ | 3,093 | $ | 3,067 | $ | 2,893 | ||||||||
|
Engineered Products and Solutions (EP&S) |
||||||||||||||||
| Sales | $ | 1,541 | $ | 1,487 | $ | 1,494 | $ | 1,408 | ||||||||
| Less: | ||||||||||||||||
| Aluminum price impact | 1 | n/a | — | n/a | ||||||||||||
| Foreign currency impact | 25 | n/a | 15 | n/a | ||||||||||||
| EP&S Organic revenue | $ | 1,515 | $ | 1,487 | $ | 1,479 | $ | 1,408 | ||||||||
|
Global Rolled Products (GRP) |
||||||||||||||||
| Sales | $ | 1,366 | $ | 1,248 | $ | 1,247 | $ | 1,080 | ||||||||
| Less: | ||||||||||||||||
| Sales – Tennessee packaging | 43 | 54 | 40 | 37 | ||||||||||||
| Sales – Fusina rolling mill | — | 45 | — | 37 | ||||||||||||
| Aluminum price impact | 109 | n/a | 113 | n/a | ||||||||||||
| Foreign currency impact | 16 | n/a | 10 | n/a | ||||||||||||
| GRP Organic revenue | $ | 1,198 | $ | 1,149 | $ | 1,084 | $ | 1,006 | ||||||||
|
Transportation and Construction Solutions |
||||||||||||||||
| Sales | $ | 537 | $ | 456 | $ | 528 | $ | 456 | ||||||||
| Less: | ||||||||||||||||
| Aluminum price impact | (1 | ) | n/a | 11 | n/a | |||||||||||
| Foreign currency impact | 25 | n/a | 15 | n/a | ||||||||||||
| TCS Organic revenue | $ | 513 | $ | 456 | $ | 502 | $ | 456 | ||||||||
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 and Toll Processing and Services Agreement with Alcoa
Corporation at the North America packaging business at its Tennessee
operations, the sale of the Fusina, Italy rolling mill, 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) | ||||||||||||
| Free Cash Flow | Quarter ended | |||||||||||
|
March 31, |
December 31, |
March 31, |
||||||||||
| Cash (used for) provided from operations | $ | (436 | ) | $ | 325 | $ | (395 | ) | ||||
| Capital expenditures | (117 | ) | (236 | ) | (103 | ) | ||||||
| Cash receipts from sold receivables | 136 | 287 | 95 | |||||||||
| Free cash flow | $ | (417 | ) | $ | 376 | $ | (403 | ) | ||||
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. In
conjunction with the implementation of the new accounting guidance on
changes to the classification of certain cash receipts and cash payments
within the statement of cash flows, specifically as it relates to the
requirement to reclassify cash receipts from net sales of beneficial
interest in sold receivables from operating activities to investing
activities, the Company has changed the calculation of its measure of
Free cash flow to include cash receipts from net sales of beneficial
interest in sold receivables. This change to our measure of Free cash
flow is being implemented to ensure consistent presentation of this
measure across all historical periods. The adoption of this accounting
guidance does not reflect a change in our underlying business or
activities. It is important to note that 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, 2018 | December 31, 2017 | September 30, 2017 | June 30, 2017 | March 31, 2017 | ||||||||||||||
| Short-term debt | $ | 45 | $ | 38 | $ | 55 | $ | 48 | $ | 47 | |||||||||
| Long-term debt, less amount due within one year | 6,309 | 6,806 | 6,802 | 6,796 | 8,046 | ||||||||||||||
| Total debt | $ | 6,354 | $ | 6,844 | $ | 6,857 | $ | 6,844 | $ | 8,093 | |||||||||
| Less: Cash and cash equivalents | 1,205 | 2,150 | 1,815 | 1,785 | 2,553 | ||||||||||||||
| Net debt | $ | 5,149 | $ | 4,694 | $ | 5,042 | $ | 5,059 | $ | 5,540 | |||||||||
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, 2018 | December 31, 2017 | March 31, 2017 | |||||||||
| Operating income (loss) | $ | 333 | $ | (433 | ) | $ | 283 | ||||
| Special items: | |||||||||||
| Restructuring and other charges | 7 | 47 | 73 | ||||||||
| Impairment of goodwill | — | 719 | — | ||||||||
| Separation costs | — | — | 18 | ||||||||
| Proxy, advisory and governance-related costs | — | — | 16 | ||||||||
| Delaware reincorporation costs | — | 3 | — | ||||||||
| Legal and other advisory costs related to Grenfell Tower | 5 | 7 | — | ||||||||
| Operating income excluding Special items | $ | 345 | $ | 343 | $ | 390 | |||||
Operating income excluding Special items 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 Operating income (loss) 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 | |||
| March 31, 2018 | ||||
| Net income | $ | 143 | ||
| Special items(1) | 26 | |||
| Net income excluding Special items | $ | 169 | ||
| Annualized net income excluding Special items | $ | 676 | ||
| Net Assets: |
March 31, 2018 |
|||
| Add: Receivables from customers, less allowances | $ | 1,179 | ||
| Add: Deferred purchase program(2) | 320 | |||
| Add: Inventories | 2,648 | |||
| Less: Accounts payable, trade | 1,874 | |||
| Working capital | 2,273 | |||
| Properties, plants, and equipment, net (PP&E) | 5,628 | |||
| Net assets – total | $ | 7,901 | ||
| RONA | 8.6 | % | ||
|
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 |
|
| (2) |
The Deferred purchase program relates to an arrangement to sell |
|
Arconic Inc.
Investor Contact
Patricia Figueroa, 212-836-2758
Patricia.Figueroa@arconic.com
or
Media Contact
Christa Zipf, 212-836-2605
Christa.Zipf@arconic.com