Business Overview and History
Howmet Aerospace Inc. (HWM) is a leading global provider of advanced engineered solutions for the aerospace and transportation industries. With a history spanning over a century, the company has established itself as a diversified powerhouse, catering to a wide range of customers across the commercial aerospace, defense aerospace, commercial transportation, and industrial markets.
Howmet's origins can be traced back to 1888, when it was founded as Alcoa Inc. Over the years, the company has undergone several transformations, including the Alcoa Inc. Separation Transaction in 2016, which resulted in the creation of Arconic Inc. and Alcoa Corporation as independent publicly traded companies. In 2020, Arconic Inc. then separated into Howmet Aerospace Inc. and Arconic Corporation, solidifying Howmet's position as a focused aerospace and transportation solutions provider.
Following the 2016 separation, Arconic Inc. retained the Engineered Products and Solutions, Global Rolled Products, and Transportation and Construction Solutions businesses. In 2017, Arconic Inc. changed its jurisdiction of incorporation from Pennsylvania to Delaware. The 2020 separation resulted in Howmet retaining the Engine Products, Fastening Systems, Engineered Structures, and Forged Wheels businesses.
Throughout its history, Howmet has faced various challenges. In 2013, the company received audit assessment notices from the French Tax Authority for the 2010 through 2012 tax years, which resulted in a legal dispute that was not fully resolved until 2024. In 2017, a fire occurred at the Grenfell Tower in London, U.K., in which Arconic Architectural Products SAS, a subsidiary of Arconic Corporation, supplied a product that was used as one component of the overall cladding system on Grenfell Tower. This incident led to regulatory investigations and litigation that Arconic Corporation is still navigating.
Today, Howmet operates in 19 countries, with a diverse product portfolio that includes investment castings, seamless rolled rings, fastening systems, titanium forgings, and forged aluminum wheels. The company's technological capabilities enable it to support the innovation and growth of next-generation aerospace programs, delivering lighter, more fuel-efficient aircraft and commercial vehicles with a lower carbon footprint.
Financials
Howmet's financial performance has been consistently strong, with the company reporting record results in 2024. For the full year, the company achieved revenue of $7.43 billion, an increase of 12% from the previous year. This growth was driven by a robust performance across its key end markets, including a 20% increase in commercial aerospace revenue and a 22% jump in defense aerospace revenue.
The company's profitability has also been impressive, with a 2024 net income of $1.16 billion, representing a 51% increase year-over-year. Howmet's adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) reached $1.84 billion in 2024, up 27% from 2023, with an adjusted EBITDA margin of 24.7%.
In the most recent quarter (Q4 2024), Howmet reported revenue of $1.89 billion, a 9% increase year-over-year, with net income of $314 million. This growth was primarily driven by the commercial aerospace, defense aerospace, and industrial markets, partially offset by lower volumes in the commercial transportation market.
Howmet's performance by geographic markets shows that North America generated 71% of the company's sales in 2024, while Europe accounted for 23%. The company also has operations in other regions, including Japan and China.
Liquidity
Howmet's balance sheet remains strong, with a net debt to EBITDA ratio of 1.4x as of the end of 2024. The company's free cash flow generation has also been robust, reaching $977 million in 2024, representing an 88% conversion of net income. This strong cash flow position has enabled Howmet to invest in growth initiatives, reduce debt, and return capital to shareholders through share repurchases and dividend payments.
As of December 31, 2024, Howmet had $564 million in cash and cash equivalents. The company maintains a $1 billion undrawn revolving credit facility and a $1 billion commercial paper program, providing additional liquidity. Howmet's current ratio was 2.17 and quick ratio was 0.98 as of the same date, indicating a healthy short-term liquidity position.
Segment Performance and Diversification
Howmet's diversified business model is a key strength, with each of its four reportable segments – Engine Products, Fastening Systems, Engineered Structures, and Forged Wheels – contributing to the company's overall success.
The Engine Products segment, which produces investment castings and seamless rolled rings for aircraft engines and industrial gas turbines, reported third-party sales of $3.73 billion in 2024, a 14% increase from 2023. This growth was driven by increased demand in the commercial aerospace, defense aerospace, oil and gas, and industrial gas turbine markets, including spares growth. The segment's Adjusted EBITDA reached $1.15 billion, up 30% from the prior year, primarily due to higher volumes.
The Fastening Systems segment, which manufactures aerospace and industrial fasteners, saw third-party sales of $1.58 billion in 2024, a 17% increase from 2023. This growth was driven by the commercial aerospace market, particularly the recovery in wide-body aircraft. The segment's Adjusted EBITDA was $406 million, up 46% from the prior year, due to higher volumes and productivity gains.
The Engineered Structures segment, focused on titanium and aluminum forgings and extrusions, experienced third-party sales of $1.06 billion in 2024, a 21% increase from 2023. This growth was primarily due to increased demand in the commercial aerospace and defense aerospace markets. The segment's Adjusted EBITDA reached $166 million, up 47% from the prior year, driven by higher volumes.
The Forged Wheels segment, which produces lightweight, high-strength forged aluminum wheels for commercial transportation, reported third-party sales of $1.05 billion in 2024, an 8% decrease from 2023. This decline was primarily due to lower volumes in the commercial transportation market and a decrease in aluminum and other inflationary cost pass-through. Despite these challenges, the segment maintained a healthy Adjusted EBITDA of $287 million, down 7% from the prior year.
Howmet's diversification across end markets and product lines has been a key driver of its resilience, enabling the company to capitalize on growth opportunities in different sectors and mitigate the impact of cyclical downturns in any single market.
Outlook and Growth Initiatives
Looking ahead, Howmet remains optimistic about its future prospects. The company is well-positioned to benefit from continued strength in the commercial aerospace market, driven by robust demand for narrow-body and wide-body aircraft, as well as increasing spares volume. In the defense aerospace segment, Howmet expects growth to be fueled by legacy fighter programs and the expanding F-35 fighter jet fleet.
The industrial gas turbine market also presents a promising opportunity for Howmet, as the company is poised to capitalize on the increasing global demand for electricity, particularly from data centers, which is driving the need for new turbine builds and higher utilization of the existing fleet.
To support its growth initiatives, Howmet is investing in capacity expansions and automation projects across its operations. The company's capital expenditure budget for 2025 is expected to be approximately 4% of sales, with a focus on supporting the growing demand in its key end markets.
Howmet has provided guidance for 2025, reflecting confidence in its continued growth trajectory. For the first quarter of 2025, the company expects revenue of $1.935 billion (±$10 million), EBITDA of $520 million (±$5 million), and earnings per share (EPS) of $0.76 (±$0.01). For the full year 2025, Howmet projects revenue of $8.03 billion (±$100 million), EBITDA of $2.13 billion (±$25 million), and EPS of $3.17 (±$0.04). The company has raised its 2025 revenue growth guidance from the previous estimate of 7.5% to 8% (±a range).
Free cash flow for 2025 is expected to reach $1.075 billion (±$50 million), further strengthening Howmet's financial position. The company has also announced a 25% increase in its dividend payout starting in Q1 2025 and plans to continue its share buyback program, with total buybacks in 2025 expected to exceed the 2024 level.
Risks and Challenges
Despite Howmet's strong performance, the company is not without its challenges. The aerospace and transportation industries are inherently cyclical, and Howmet's business is susceptible to fluctuations in global economic conditions, changes in customer demand, and industry-specific factors such as aircraft build rates and commercial vehicle sales.
Moreover, the company operates in a highly competitive environment, with peers vying for market share and customers seeking cost-effective solutions. Howmet's ability to maintain its technological edge and differentiated product offerings will be crucial in defending its market position.
Geopolitical tensions, trade policies, and supply chain disruptions also pose risks to Howmet's operations and financial performance. The company's global footprint and diversified customer base help mitigate these risks to some extent, but the company remains vigilant in managing these challenges.
Human Capital
As of the end of 2024, Howmet employed approximately 23,930 people worldwide. About 25% of the U.S. workforce is represented by labor unions, highlighting the importance of maintaining positive labor relations for the company's continued success.
Conclusion
Howmet Aerospace Inc. has demonstrated its resilience and adaptability in the face of market challenges, leveraging its diversified business model and technological expertise to deliver strong financial results. With a solid balance sheet, robust cash flow generation, and a strategic focus on growth initiatives, the company appears well-poised to capitalize on the long-term trends in the aerospace and transportation industries.
Howmet's strong performance in 2024, exceeding its own guidance with record revenues, EBITDA, EBITDA margin, and earnings per share, underscores the company's operational excellence and market leadership. The positive outlook for 2025, supported by increased guidance and a commitment to shareholder returns through dividend increases and share buybacks, further reinforces investor confidence in Howmet's growth trajectory.
As Howmet continues to innovate and expand its reach, it stands out as a compelling investment opportunity for those seeking exposure to the dynamic and technologically advanced aerospace and transportation solutions market. With its diverse product portfolio, strong customer relationships, and focus on high-growth sectors, Howmet Aerospace is well-positioned to navigate industry challenges and deliver long-term value to its shareholders.