Arconic (ARNC) 1 Nov 222022 Q3 Earnings call transcript

Thank you for standing by and welcome to the Arconic Corporation Third Quarter 2022 Earnings Conference Call. [Operator Instructions] As a reminder, today’s program is being recorded. And now, I’d like to introduce your host for today’s program, Shane Rourke, Director of Investor Relations. Please go ahead, sir.

Thank you, Jonathan. to Corporation welcome earnings quarter and call. conference morning the third Arconic XXXX Good today Myers, Financial by and joined am I Tim Executive President Erick Chief Vice and Chief Officer. Asmussen, Officer; Executive and Erick, After comments by we have session. a will question-and-answer Tim

events would you discussion relating under the to posted to follow Investors remind expectations. would will like Tab statements on and you For presentation, who along future slides today’s the contain those forward-looking to like of I that are the with our website.

You from in the release differ and can SEC may actual company’s cause press recent find factors the that filings. results to in earnings today’s materially our most presented projections presentation

financial press presentation. With financial the In in the most Reconciliations today’s our measures addition, release appendix to found in like discussion. I’d GAAP call the can today’s in and over have we Tim. be some in earnings non-GAAP turn to measures to that, comparable included directly

Shane key start Thank billion up you, I X XX% generated organically for in quarter. takeaways with $X.X sales, year-over-year. will We Slide on the and hello everyone. some

the markets, strong, end of we Adjusted X grew resolved million of North quarter year-on-year $XXX in despite to that completed the million remain X $XXX the $XXX end we the Tennessee had the of we markets as range and repurchase quarter have America, production organic expected $XXX the volumes production million. our quarter. In in challenges revenue We operational in issues impacted third share million center the EBITDA and equipment-related in authorization. in Davenport in was this

our building into automotive given has be the and and as continues packaging well and forward, Going well in recovery positioned and are aerospace we construction strong. to been industrial we and expansions as believe

costs you across reducing demand in hyperinflationary up driving and Europe, energy sectors. know, are prices As

is we our feeling industrial we The Camas facility, production greatly biggest Hungarian a was the ramping higher being here level across rates. to services market. operating in record limits and we impacted which are capital lost to sales discussed That the assets primarily our levels but operations of our expected Europe, ability September, operational are at challenges are recover North in in were executing But America, our We all pressure especially when our not problem. in investment.

issues asset September In repaired. times, sales shipments. moving to identified and now detail at third some I the a we the quarter. in or the Davenport been forward. hot X, everything same normal Moving Starting previously cause and quarter operations, two the The resolved with facility was now Slide The at outage facilities are Tennessee that that was has we been multiple will has we the the issues the additional enhancing dramatically impacting X. cable in in assure failed provide faced have identified our running practices third without root to stability at on quarter Tennessee biggest outage times. to expected disruptor planning facilities a casting rates accommodate The time, been electrical impacted both since put could a and for as are mill At caused rates. running in maintenance the third expected better challenges

our for Altogether, the compared system. first of North XXXX entire of American the approximately delackering weeks estimate hot and of The increasing However, Tennessee changing mill at vulnerabilities. load out cable that to combination and rapid a adjusted estimated and involves year quarter. outlook we Tennessee challenges Davenport by new issues rapidly order four production impacting the simultaneously our span This our coming our million few facility furnace the product the reduced up increasing rolling these the and EBITDA ramp disrupted expectations mix. electrical full rates over a $XX exposed

three The growth as those initiative issues our X at planned mill impacted of our pieces hot of with planned weeks. Lancaster to key on This were impacting while a of issues increase run-rates as shipment Just included by Phase equipment. facility. outage one X them taken part were behind reduced capacity hot three be This Two upgrading getting as of outage our further to to us, initial Lancaster to run third. is operating we are related volumes. was on we rates us hampering offline of causing are the pre-outage reach at expected, challenges the the mill

by quarter, return making continuously by to end quarter. are we restoring and million fourth normal $XX of them, on rates the the progress earnings this anticipate to to but production expect operations We normal levels impacting

and Our Lancaster XXXX continuing facility into running in starting record XXXX. at rates, had been

to As sales the such, don’t lost the have and ability we recover production.

the we capacity. we so years. forward? sustaining as what are intend gains address core we to these doing increased over issues last in our X We investments make we First, business So foreseeable the maintain the for don’t grow already in to moving future, growth CapEx this level spend had we lose of leakage to

enhanced of X monitoring well as as days moving and outages multi-site we securing engineering, all our major capital our projects practices forward. management enhancing maintenance at and over Secondly, we have contracts procurement are and peer construction reviews

and we to greater the we for outage and senior are maintenance and results, regard impact and being We bit to increase plans engineering building continue more to been potential will from about contingency to operations future conservative be reliability of projects. timing have a operating With entry-level capital and also positions. will roles staffing in

in out EBITDA spot million. our prices the industrial improved Hungarian moderately in drop driver of greatest to also first demand industrial million as our estimated expectations since out the The near-term transportation quarter. demand in revised Energy that we energy as of for has the Europe half impact European We of commercial in Europe demand in end outlook view has on and and by called cost activity our region and the favorable facility. hyperinflationary coming compared off costs fallen have the a energy products. adjusted demand $X in second year significantly have XXXX headwinds curtail and for a the $XX

in slowdowns business, profitability Systems demand XX% $XXX seeing the during in up compared our our European If of reduced be to these of total. to what facilities run-rate million also are Building the XXXX, and about be European similar roughly levels Construction which experienced annually. continues we impacted BCS make segment could We at breakeven, to pandemic current

of We some are taking the relief, which early countermeasures of similar and help impact a European expect weakness. should the we of also the days regulatory to the mitigate to pandemic, range

our we provide I Moving end markets. X, now on Slide to across will how some detail performed

had Construction and out we – revenue in here? growth significantly & stands double-digit industrial, to year-on-year our than the Aerospace, has First, Packaging was but anticipated by all the and on growth have every company in challenges slower lead industrial ground continue will led as Tennessee. recovery Building issues transportation growth what bit little year impacted faced has operational market, So level. a and which been

This XXXX, recovery in Automotive up its corner up two partially were slowed move organic quarters. was offset earlier. Now, demand was quarter met Tennessee the XX% packaging increased and the continues transportation ramp primarily The year. market let’s right Year-on-year to with third up sales facility. business last the organically our ramp total, XX% we In shipments packaging the XX% to revenue of slide. of starts. year-on-year production XX% second growth issues in the from by from on by down lower the second the bottom quarter. last can packaging due the fits due to growth Russia. building production and ongoing Sales challenges were Ground quarter, Tennessee some to from requirements commercial despite at volumes, its discussed over impacted growth transportation in China sheet which export

the by a third construction in XX% building offset sales year-on-year. in to increased actions North pricing now as be well strength quarter strength Europe. second organically Following as and organic America, driven by weakness increase partially The continues in XX% quarter,

in Tennessee. our Third the XXXX. clear We a Demand and organically substantially fourth strong, we in declined market backlog are into that quarter with entered reduced book by industrial and through were working remains the quarter the industrial XX% year-on-year. quarter sales in order the in challenges our the early pricing market sales significant but to

sales comparison. were This XX% second compares up XX% an the on stronger basis growth much aerospace year-on-year. organic organic quarter year-over-year in a to third quarter, Finally, but against

consumer heading stronger to get All demand signs over aircraft rates, comparisons we discuss commercial detail. may air turn I’ll year-on-year for results in more growth, demand Erick the now production the fourth large lower to see travel. and ramp-up the into ongoing recovery, including As it quarter third quarter, point continues. but to

a billion, the highlights. $X.XX compared of in net up third on X with Thanks, million third income Slide $XX million quarter, was we of the $X.XX net had or Tim. year-over-year. start per Revenue of organically share In XXXX. per $X.X XX% quarter I’ll $XX loss share to quarter or financial our

Adjusted $XXX million as shares we for reduced Our quarter $XXX by Free we was by favorable million inventory approximately to have loss decline triggered was net regular cash year-over-year. of the our related May a non-cash aluminum working inception of Extrusion out year. flow long-term business our and XX% in X million of in congestion quarter the the X%. profitability in to includes a announced which to outlook the number EBITDA repurchased that after-tax completed review, impairment related operational quarter challenges financial of asset well executed offset and initial capital the planning impairment lower-than-expected had program, impacted $XX our The million prices but $XX by our capital charge was came shares segment. working issues. was process. Since Lower million, being that we outstanding this a quarter, by to we long-lived operational of third In related are approximately was the revised are the authorization last issues. as

and sheet we $X.X Lastly, the quarter approximately available with liquidity cash billion. ended strong of our balance remains as

challenges volume and cost European Adjusted and XX% I primarily mix. EBITDA realization prices well absorption down increased loan and was pricing and actions fixed to the improved Now $XX and due the operational to the million more to or I’ll as discuss detail. million, X, performance in volume $XXX on quarter higher impacts quarter $XXX year-over-year, due costs. the Slide and impacts energy third million the turn in in of impact quarterly our the will Revenue to of financial volume year-over-year on as of

actions to experience We offset inflation continue continue to we inflation. with to push pricing high as

million net Our $XXX inflation of quarter as was European million and $XXX from energy, and alloying energy inflation of the the approximately it includes negative savings in impacted and materials. by primarily was a transportation issues inflation operational

the $XX XX% we year-over-year, up and high or volume performing Slide inflation the $X.X level. interest segment, And discussed Sales Products past, was billion, $XX transaction by to aluminum which X, the Rolled Adjusted will organically. net up driven consider operational with to million earlier to our investor was higher and had significant that million X% $XXX the were impacted enthusiasm significantly in at and to by we year-over-year segment value. shareholder Starting a quarter million, $XXX Revenue segment XX% EBITDA quarter as savings approximately our enhance million, up million segment continued Building down the and EBITDA revenue drove million, year, $XX & us in in performance. was quarter offset and I in or adjusted is organically Turning up a review our the in challenges in costs. XX% pricing third $XX This year-over-year. Construction was year-over-year. third better

undervalue of without in sale for we deterioration markets and terminated surprise, available we debt process business caused by destroy the likely shareholder that the determined and financing debt speed value. as the would pushing However, the

XX% well. this segment we’re As was to Extrusion inflation quarterly million versus year high EBITDA was a volume a loss of growth the performance perform could you the our as not year-over-year. see, quarter can million, $XX offset the $XX up last $X actions million for Revenue loss very pricing of in experiencing. of Adjusted business continues and

segment. changes to work to on profitability in improve continue volume structural loading We this in

outlook to over back by review it Tim turn to I’ll Now market. our

Thanks, Erick.

operational growth market every building decline. reduced in You’ll challenges rather the reduced that construction. demand that It’s than notice our for than note, to revenue however, year by and is shipments important this expectations driven our nearly here we’ve other all

supply be and prior and of up chain that X% continues, now XXXX. have automotive challenges. to the to broader X% but continue uneven in as OEMs quarter to fourth backlogs revenue of in will to addressed aerospace In industrial in to X% Ground view be growth. range orders year-on-year organic the into ramp through orders Transportation XX% be compared is early fact, the expected work The we

transportation know as a interest higher into going are commercial XXXX also rates. sensitive we close We’re to fleets very keeping on demand eye

industrial and from due markets to year-on-year the fall strong. issues growth Our the down Lancaster to XX% organic flat to end while XX% expectations revenue X% to remain at Tennessee

backlog In fourth segment. fact, that quarter in the we have of million entering a $XX nearly

to maintaining perform slowed. are strong, XX% North continue and our well has We construction view, construction year-on-year organic growth. remains in Europe to non-residential activity American on XX% building sales revenue while

Davenport XX% growth packaging outlook third Our been the to as American has organic to from modestly been China to XX%, XX% Aerospace continues North at predominantly from organic in the to to to expected. has XX% lower The production outlook reduced of reflecting quarter. and export due ramp reduced XX% out XX% Russia challenges sales XX% XX% operations. our to revenue

is recovery unchanged. of market Our view

We I’ll pursuant our complex Turning and of Russian transaction. interested given with XX, our in in company the several the government to third is Russia. to we that This completion process ongoing for working towards party initiating continuing The is geopolitical current a to factors sale announced Russia. to agreement. has process ability approvals this obtaining and sell Slide we the uncertainty creates process to operations, had of to of framework May to involving estimate in likelihood and the pursue ultimately ultimately operations the unusually on proceedings the operations a or timing respect company’s The parties sale. were a update an are provide the

X,XXX continue million, down continue our Russia from $XX this second modestly to EBITDA same employees Adjusted quarter year. – million support our difficult $XX third in which time. challenges, operations to Despite run through and very quarter in last well. quarter is in transformational was was We the the

our around million input million $XX increasing team second Russian sales $XX at supply guidance million end $XX $XX the to million foreign and and million, year. has as lost half from year-end offset This fluctuations. at the XXXX. challenges a in to $XX from are of to earnings the been able operation there our We of for quarter $XXX the was Cash currency export to million primarily result the of is address strong up

at of to million move XX, to Slide in now I’ll full the be for the expect $XXX compared Let’s to year. adjusted to now outlook our and We review XXXX range EBITDA year $XXX The million our outage prior expectation facility of to due mill. up after reduction our hot $XXX million our to ramping is our Lancaster to primarily $XXX challenges the million. scheduled increase capacity on

to and million $X for to compared of be to $XXX full XXXX our of view billion $X.X our million revenue expect to free billion. billion to approximately cash of is We outlook. in And view working be the $X.X capital $XXX reduced approximately prior billion $X.X expected flow due prior our to year earnings compared range to higher

iconic excited not the are performance for satisfied are remain there EBITDA the opportunities to moving forward. reasons While we and with story in several adjusted XXXX, our

last the we’ve issues and well. the operational at with Davenport are those resolved quarter running repairs facilities and Tennessee First,

plans long-term path We organic investment a capital that growth. to also EBITDA have support

and Our project of Phase project mill in And is to the X EBITDA underway in and reach to now. complete its and is Lancaster year. half run Davenport second the impact contributing rate targeted next is EBITDA hot

$XXX to EBITDA. and project million consider scope said, to projects these be also are of and That revisiting we the growth several of will another future our factors. able We investments contribute additional costs incremental timing

capital that our our position are simple First, cost-out and prioritize terms, will the ESG melting as to we characteristics. that means projects risk. we the are going avoid as market well cost projects enhance prioritizing improve return-seeking casting to In

involve this that are Based additions our that peak at rates. don’t capacity gains assets existing de-risking capacity. off-line targeting experience core our are profit our earnings quarter, in operating we versus on losses Second, potential

out appropriately capital project that on basis next changes up, the global a macro obviously uncertainty the future, in and tough Third, EBITDA Altogether, we and period believe we the spreading we improvement inflationary pressures. growth year-end in realization associated de-risk assure be Europe are the installation We economic in in versus our year-end at to project was addressing our ramp-up X rate can quarter. year these the conditions And this Lancaster. sustainable will we of and now execution there. very experienced allocation we the the until run million intentional uplift Wrapping to are $XXX period quickly see looking general with them. But XXXX. XXXX to move to it’s investment the a estimate given qualification time transitory, issues finally, delaying prior we and associated capital the the of are are

one still is opportunity optimistic Our about. be to

Thank are in strong have serve, and you North for like to back would in returns America. very the time Our growth we to today. your our for Session questions. the interest forward. earnings and I levers moving turn markets open Question-and-Answer multiple much available call particularly win markets to drive your strong, over and Aluminum end for to Jonathan shareholders continues to we it And now

[Operator comes Tanners Timna Wolfe Research. of question Instructions] first from And line the our from

question please. Your

Yes. morning thanks Good the Hey. and for update.

Good morning Timna.

the I morning. little to bit dive further saw to a the you review the on around? more elaborate and strategic turn that your write-down? in can And Good implications on business. X-year plans wanted there just bit plan extrusions We more any for a

and reductions of particularly We Yes. put for of driver certain North we the America are some that the operations ramps that that want help segments And out to America. our improve the recovery running North Timna, the profitability. eventually that XXXX will of out be we still should are parts some it going in that as in us in into to in best the so business, aerospace up, biggest large with be exit manufacturing, long-term particularly contracts really XXXX. structural we have continuing here cost phasing on do and

with business So, turning we are around. on going to continue that

you looking be with understood and to the other the from and if parts you are kind parts getting properly, recovery aerospace So, are cycle you of exit benefiting will I hoping the business of fixed recovering?

Yes.

sometimes you one So, be get of to better. have those happens this get And situations. smaller to to

then Got was I concerned. producers side, or with – from on dismissive comments the Ball the and bit cautious quarter, we we spoke a some packaging it last it. were heard And less think

can hearing but typically Like packaging are time? cautious is on you different business, more stable been side? this address risk from something Crown. we quarter, the could This there comments the It’s just that be

comment, So, the I well. your because we American participate in China and to am North that from going answer as in perspective Russia

in America, we Here North up. ramping are

about represent that market. customers. out X% we contracted of think I We the six that amongst

our our can We have not lines. of falloff given seen of relative don’t a the located Tennessee a I with concern packaging demand. And market. and attractiveness is the where vis-à-vis in size have lot

very Thanks there. it leave much. will I Okay.

Thank you.

you. Instructions] Deutsche comes from our from Thank Blanchard And Bank. [Operator question Corinne of the next line

Your question please.

Good taking XXXX. understand the morning and Tim better trying question. Hey. I to Erick. path to am my for Thanks just

So, in on like your growth market more lot versus obviously, but level. macro think the trade little on like XXXX. XXXX end asset a I imply challenges bit roughly consensus back, XX% operation about estimate, a I of also But look if

or you would your have be get comfortable a thought to wanted Just you how if those different view? with on numbers

So, operational headwinds had will about again start half. we million second of with $XXX the I in now – have

kind not plan that certainly would through I carrying performance so on of And XXXX.

that external But that not deduct. it’s look an will always to are we assume million Russia. me at in successful thinking start are $XX that. about clear you that transaction, When be I will with estimates, how if I people So,

that to if recovery should us happens. So, the offset that allow fully

plan year in. have The also getting project. generating already growth EBITDA. project from the Davenport that half We on a projects EBITDA Lancaster two is coming the We are

you as us. that headwinds of is what in we that, How sometime have be be the we some inflationary have of year, million that, changed coming the then see contracts on North move America, on that. here to spot, of XXXX, handicap in forward. industrial got come have Europe in of improvement. long-term through start off $XXX will to factor passing in lag will we that that and the And the we kind is the going may against some signs environment And us contracts other but that’s a then tailwind price recover hopefully, XXXX, XXXX aerospace So, EBITDA positive have the we should And will and to first half Europe. for is for of in we into our mentioned XXXX

view come our that Europe and I into have will we America we XXXX the two start North next in the inflation Year in better much think as and New So, I factors on risk call. mentioned a talking about guidance of

will I take Thank you. Thank the offline. you. rest Alright.

Difficulty] you. Thank [Technical

new you have you a kind think projects as looking about of And or it. projects delaying the got view Okay, have signals have thinking then CapEx as number the investments, yet? you on as markets, others your well? had American North of any far long-term seen doing seen aluminum You any signals do same of packaging at large announced, others own of

I have used the quarter, latest the not think seen – I that. I of announcement announcement was and on haven’t the updates SDI any not. I significance last have

vehicles you just one of on OEMs on larger components. have from, as And waiting benefiting the and shipping almost completed side, just automotive mentioned, the been some then

SAAR we expect through? that sort some the OEMs impact at of trade look Should aluminum managing to how pull you at relative or If does this auto inventory, catch-up of point? kind that the the eventually pull

will first. there I answer XXXX, about think I as So,

I seen I think as concentrated. automotive and earlier, the called in has improvement some them we it’s fits but have still It continued demand. starts more

That’s problems. more thinking we all year, this about our almost taking gotten outages if of were having customers supply last they were intermittently because were concentrated. So, chain

couple the carrying quarter. vehicles backlog with about customers struggling have are some are that we they that. that this a are There into that have of OEMs still So, of talked

to Ford have trying of year, at view quarter. still you I of the they got still an they IHS left clear to releases and But that uplift. look in their this vehicles had read next think one that when I they clear were XX,XXX about

they XX.X year, X% going roughly saw, the last I next think numbers I is XX.X from about million million which were to growth.

automotive, So, see continue but I not SAAR prior we that to in were to vehicle still think XX that recovery enjoying approaching we COVID. million will

you the Okay. time. for Thank

you. Tim any program of back today’s the conclude further for to End like does Thank Myers This remarks. of program. the I session question-and-answer hand would to Q&A

you, to of Jonathan us Thank and thanks all joining today. you for

about We continue excited you to path be in for and are returns with next look our growth quarter to deliver update. forward ability Arconic long-term and I EBITDA forward of capital confident to to the adjusted to another we our shareholders. And talking

participation gentlemen, This conference. Thank program. ladies and does you, for today’s your in conclude the

may You now disconnect.