A month has gone by since the last earnings report for Howmet (HWM). Shares have lost about 4.4% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Howmet due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Howmet Q1 Earnings Beat, Surge Y/Y on Higher Revenues
Howmet first-quarter 2023 adjusted earnings of 42 cents per share beat the Zacks Consensus Estimate of earnings of 38 cents per share. The bottom line improved 35.5% year over year.
Total revenues of $1,603 million surpassed the Zacks Consensus Estimate of $1,495 million. The top line increased 21.1% from the year-ago quarter. The increase was backed by an improved commercial aerospace market and pricing actions.
The Engine Products segment’s revenues totaled $795 million, representing 49.6% of net revenues in the quarter under review. On a year-over-year basis, the segment’s revenues increased 26%, driven by growth in commercial aerospace, defense aerospace, industrial gas turbine, and oil and gas markets.
The Fastening Systems segment generated revenues of $312 million, accounting for 19.5% of net revenues in the reported quarter. Revenues increased 18% year over year, driven by strength in the narrow-body commercial aerospace and defense aerospace markets.
The Engineered Structures segment’s revenues, representing 12.9% of net revenues, increased 14% year over year to $207 million. The results benefited from strength in the commercial aerospace market, partially offset by declines in the defense aerospace market.
Forged Wheels revenues totaled $289 million, representing 18% of net revenues in the quarter under review. On a year-over-year basis, the segment’s revenues increased 17%, driven by an increase in volume.
In the reported quarter, Howmet’s cost of goods sold increased 22.5% year over year to $1,164 million. Selling, general, administrative and other expenses increased 8.7% year over year to $75 million. Research and development expenses were $9 million in the quarter.
Adjusted EBITDA, excluding special items, in the reported quarter was $360 million, up 20% year over year. Adjusted EBITDA margin decreased approximately 20 basis points (bps) year over year to 22.5%. Operating income increased 23.9% year over year to $285 million. The operating income margin increased 40 bps year over year to 17.8% in the reported quarter. Net interest expenses in the quarter totaled $57 million, down 1.7% from the year-ago quarter.
Balance Sheet and Cash Flow
Exiting the first quarter of 2023, Howmet had cash and cash equivalents of $537 million, compared with $791 million at the end of December 2022. Long-term debt (less amount due within one year) was $3,988 million, compared with $4,162 million at the end of fourth-quarter 2022.
In the first three months of 2023, Howmet generated net cash of $23 million from operating activities, compared with $55 million generated in the year-ago period. Capital spending totaled $64 million, compared with $62 million a year ago. Free cash outflow was $41 million in the period.
Howmet paid out dividends of $17 million in the first three months of 2023, compared with $9 million in the year-ago period. Also, it repurchased shares worth $25 million in the year, compared with the $175 million buyback made a year ago.
For the second quarter of 2023, Howmet expects revenues of $1.6-$1.62 billion. The midpoint of the guided range — $1.61 billion — lies above the Zacks Consensus Estimate of $1.53 billion. Adjusted EBITDA is expected to be between $359 million and$365 million, while the margin is anticipated to be 22.4-22.5%. Adjusted earnings per share are estimated to be 41-43 cents in the second quarter. The midpoint of the guided range — 42 cents — lies above the Zacks Consensus Estimate of 40 cents.
For 2023, Howmet predicts revenues of $6.200-$6.325 billion compared with $6.000-$6.200 billion predicted earlier. The midpoint of the guided range — $6.250 billion — lies above the Zacks Consensus Estimate of $6.13 billion. Adjusted EBITDA is estimated to be $1.400-$1.435 billion, compared with $1.335-$1.415 billion anticipated earlier, while the margin is projected to be 22.6-22.7%, compared with 22.3-22.8% predicted earlier.
Adjusted earnings per share are forecasted in the band of $1.65-$1.70, compared with $1.53-$1.67 predicted earlier. The mid-point of the guided range — $1.67 — lies above the Zacks Consensus Estimate of $1.62. Free cash flow is expected to be $600-$670 million for 2023, compared with $580-$650 million anticipated earlier.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month.
The consensus estimate has shifted 7.68% due to these changes.
Currently, Howmet has an average Growth Score of C, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Howmet has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
Performance of an Industry Player
Howmet belongs to the Zacks Engineering - R and D Services industry. Another stock from the same industry, KBR Inc. (KBR), has gained 0.8% over the past month. More than a month has passed since the company reported results for the quarter ended March 2023.
KBR reported revenues of $1.7 billion in the last reported quarter, representing a year-over-year change of -0.6%. EPS of $0.67 for the same period compares with $0.62 a year ago.
KBR is expected to post earnings of $0.70 per share for the current quarter, representing a year-over-year change of -7.9%. Over the last 30 days, the Zacks Consensus Estimate has changed -3.4%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for KBR. Also, the stock has a VGM Score of B.
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