Arconic Reports First Quarter 2022 Results and Raises OutlookMay 03, 2022 at 06:45 AM EDT
First Quarter 2022 Highlights
Arconic Corporation (NYSE: ARNC) (“Arconic” or “the Company”) today reported first quarter 2022 results. Revenue was $2.2 billion, up 2% from the prior quarter, primarily due to higher aluminum prices, ongoing recovery in aerospace, and the ramp up of packaging sales in the United States, partially offset by weak ground transportation sales. The Company reported net income of $42 million, or $0.39 per share, compared with $52 million, or $0.46 per share, in first quarter 2021. First quarter 2022 Adjusted EBITDA was $205 million, an increase of 15% year over year and up 17% sequentially, driven by strength in industrial, building and construction, and packaging ramp up in Tennessee, partially offset by weakness in automotive due to customer semiconductor supply issues. Cash used for operations was $103 million and capital expenditures were $95 million. At quarter-end, the cash balance was $210 million with total available liquidity of approximately $1.3 billion, and debt was approximately $1.7 billion. Tim Myers, Chief Executive Officer, said, “Adjusted EBITDA stepped up significantly in the first quarter of the year, the best for Arconic as a standalone company. Our North American packaging production ramped up, the aerospace market continued to improve, and we captured price and mix benefits in our building and construction and industrial markets. We have countered inflation with price and cost initiatives and should progress on that front as the year goes on. We continue to expect automotive production to improve through the year recovering from first quarter OEM shutdowns related to ongoing semiconductor supply issues.” With regard to the Company’s business in Russia, Mr. Myers stated, “We are horrified and dismayed by the conflict in Ukraine, and we continue to support efforts for a peaceful resolution. On March 10th, we announced a pause in new contracts in Russia, and we are actively pursuing additional deliberate and responsible options for our business there. The safety and well-being of our employees remains our highest priority as well as meeting our legal obligations.” First Quarter Segment Performance Revenue by Segment (in millions)
Adjusted EBITDA (in millions)
Outlook The Company is updating its full-year 2022 outlook to reflect the impact of increased aluminum prices on revenue and working capital as well as improved profitability due to stronger price action realizations and building and construction market conditions. Arconic revenue expectations are now in the range of $10.1 billion to $10.5 billion for full-year 2022 compared with the prior expected range of $9.9 billion to $10.3 billion. This assumes an average annual LME aluminum price of $3,350/mt and Midwest Premium of $850/mt for the full year, increased from prior assumptions for LME of $3,000/mt and Midwest Premium of $700/mt. Adjusted EBITDA is now expected to be in the range of $820 million to $870 million compared with the prior range of $800 million to $850 million. Adjusted free cash flow outlook for full-year 2022 is now approximately $125 million compared with the prior outlook of approximately $250 million due to higher working capital use associated with the increase in aluminum prices. Asset-Based Lending Facility Upsize and Share Repurchase Program In the 2022 first quarter, the Company’s ABL Credit Agreement was amended to increase the revolving commitments under the ABL Credit Facility to $1.2 billion from $800 million. Also in the quarter, the Company repurchased approximately 0.5 million shares for a total of approximately $16 million. Since the start of the program in May 2021 through March 31, 2022, the Company repurchased approximately 5.4 million shares for a total of approximately $177 million of the $300 million two-year authorization. Arconic will hold its quarterly conference call at 10:00 AM Eastern Time on May 3, 2022, to present first quarter 2022 financial results. The call will be webcast on the Arconic website. Call information and related details are available at www.arconic.com under “Investors.” About Arconic Arconic Corporation (NYSE: ARNC), headquartered in Pittsburgh, Pennsylvania, is a leading provider of aluminum sheet, plate, and extrusions, as well as innovative architectural products, that advance the ground transportation, aerospace, building and construction, industrial and packaging end markets. For more information: www.arconic.com. 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, projections, beliefs or opinions about the future, other than statements of historical fact, are forward-looking statements, including, without limitation, statements, relating to the condition of, or trends or developments in, the ground transportation, aerospace, building and construction, industrial, packaging and other end markets; Arconic’s future financial results, operating performance, working capital, cash flows, liquidity and financial position; cost savings and restructuring programs; Arconic's strategies, outlook, business and financial prospects; share repurchases; costs associated with pension and other post-retirement benefit plans; projected sources of cash flow; and potential legal liability. 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 actual results may differ materially from those indicated by these forward-looking statements due to a variety of risks, uncertainties and changes in circumstances, many of which are beyond Arconic’s control. Such risks and uncertainties include, but are not limited to: (a) continuing uncertainty regarding the duration and impact of the COVID-19 pandemic on our business and the businesses of our customers and suppliers including labor shortages and increased quarantine rates; (b) deterioration in global economic and financial market conditions generally; (c) unfavorable changes in the end markets we serve; (d) the inability to achieve the level of revenue growth, cash generation, cost savings, benefits of our management of legacy liabilities, improvement in profitability and margins, fiscal discipline, or strengthening of competitiveness and operations anticipated or targeted; (e) adverse changes in discount rates or investment returns on pension assets; (f) competition from new product offerings, disruptive technologies, industry consolidation or other developments; (g) the loss of significant customers or adverse changes in customers’ business or financial condition; (h) manufacturing difficulties or other issues that impact product performance, quality or safety; (i) the impact of pricing volatility in raw materials and inflationary pressures on our costs of production; (j) a significant downturn in the business or financial condition of a key supplier or other supply chain disruptions; (k) challenges to or infringements on our intellectual property rights; (l) the inability to successfully implement our re-entry into the U.S. packaging market or to realize the expected benefits of other strategic initiatives or projects; (m) the inability to identify or successfully respond to changing trends in our end markets; (n) the impact of potential cyber attacks and information technology or data security breaches; (o) geopolitical, economic, and regulatory risks relating to our global operations, including compliance with U.S. and foreign trade and tax laws, sanctions, embargoes and other regulations; (p) the outcome of contingencies, including legal proceedings, government or regulatory investigations, and environmental remediation and compliance matters; (q) restrictions imposed by authorities on the operation of our Samara, Russia facility; (r) the impact of the conflict between Russia and Ukraine on economic conditions in general and on our business and operations; and (s) the other risk factors summarized in Arconic’s Form 10-K for the year ended December 31, 2021 and other reports filed with the U.S. Securities and Exchange Commission (SEC). The above list of factors is not exhaustive or necessarily in order of importance. Market projections are subject to the risks discussed above and in this release, 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 financial measures 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 any measure of performance or financial condition as determined in accordance with GAAP, and investors should consider Arconic’s performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of Arconic. Non-GAAP financial measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the results or financial condition as reported under GAAP. Non-GAAP financial measures presented by Arconic may not be comparable to non-GAAP financial measures presented by other companies. 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. Arconic has not provided reconciliations of any forward-looking non-GAAP financial measures, such as adjusted EBITDA, and free cash flow, to the most directly comparable GAAP financial measures because 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 metal price lag, foreign currency movements, unrealized gains or losses on mark-to-market hedging, 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.
Arconic’s definition of Adjusted EBITDA (Earnings before interest, taxes, depreciation, and amortization) is net margin plus an add-back for the following items: Provision for depreciation and amortization; Stock-based compensation; Metal price lag (see footnote 3); Unrealized (gains) losses on mark-to-market hedging instruments and derivatives (see below); and Other special items. Net margin is equivalent to Sales minus the following items: Cost of goods sold; Selling, general administrative, and other expenses; Research and development expenses; and Provision for depreciation and amortization. Special items are composed of restructuring and other charges, discrete income tax items, and other items as deemed appropriate by management. There can be no assurances that additional special items will not occur in future periods. Adjusted EBITDA is a non-GAAP financial measure. Management believes that this measure is meaningful to investors because Adjusted EBITDA provides additional information with respect to Arconic’s operating performance and the Company’s ability to meet its financial obligations. The Adjusted EBITDA presented may not be comparable to similarly titled measures of other companies. Effective in the first quarter of 2022, management modified the Company’s definition of Adjusted EBITDA to exclude the impact of unrealized gains and losses on mark-to-market hedging instruments and derivatives. This modification was deemed appropriate as Arconic is considering entering into additional hedging instruments in future reporting periods if favorable conditions exist to mitigate cost inflation. Certain of these instruments may not qualify for hedge accounting resulting in unrealized gains and losses being recorded directly to Sales or Cost of goods sold, as appropriate (i.e., mark-to-market). Additionally, this change was also applied to derivatives that do not qualify for hedge accounting for consistency purposes. The Company does not have a regular practice of entering into contracts that are treated as derivatives for accounting purposes. Ultimately, this change was made to maintain the transparency and visibility of the underlying operating performance of Arconic. Prior to this change, the Company had a limited number of hedging instruments and derivatives that did not qualify for hedge accounting, the unrealized impact of which was not material to Arconic’s Adjusted EBITDA. Accordingly, prior period information presented was not recast to reflect this change.
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