Howmet Aerospace Inc. 2026 Q3 Earnings Call

Thank you, Danish. Good morning and welcome to the Howmet Aerospace third quarter 2026 results conference call. I am joined by John Plant, Executive Chairman and Chief Executive Officer, and Patrick Winterlich, Executive Vice President and Chief Financial Officer. After comments by John and Patrick, we will have a question and answer session. I would like to remind you that today's discussion will contain forward-looking statements relating to future events and expectations. You can find the factors that could cause actual results to differ materially from these projections listed in today's presentation and earnings press release, and in our most recent SEC filings. In today's presentation, references to EBITDA, operating income, and EPS mean adjusted EBITDA, adjusted operating income, and adjusted EPS. These measures are among the non-GAAP financial measures that we have included in our discussion.

Reconciliations to the most directly comparable GAAP measures can be found in today's press release and in the appendix in today's presentation. In addition, unless otherwise noted, all comparisons are on a year-over-year basis. With that, I would like to turn the call over to John.

Good morning, everybody, and welcome to Howmet's Q3 earnings call. Let's start with the highlights on slide 4. Howmet's performance in Q3 was solid in all dimensions. Revenues at $2.7 billion were up 29% year-over-year and up 25% through organic growth. EBITDA was $879 million and was up 43%, with a margin rate of 32.5%. Margins were up 40 basis points from the second quarter, and year-over-year incrementals were 43% after the dampening effect of the CAM acquisition. Free cash flow in the quarter was $562 million after capital expenditure of $147 million, which was a quarterly record. A strong cash flow supported by share buybacks of $500 million. In addition, gross debt was reduced by $60 million in the quarter. And we ended with approximately 1.3 times net debt to EBITDA.

We have repurchased $1.1 billion of shares to date, which is $400 million more than the total repurchases in 2025. I would like to note that our diluted share count fell to just below 400 million outstanding shares at 399.5 million at the end of Q3. Over the last eight years, the share count has been reduced by in excess of 100 million shares. Earnings per share were $1.46, a 54% increase year-over-year. This sets us up well to achieve the remainder of our 2026 objectives. Good progress was made on several fronts, with new business being booked in line with our outlook expectations in commercial aerospace, defense aerospace, and industrial gas turbines. Of particular note in the quarter was the 45% gas turbine revenue growth, which demonstrates both the extraordinary addition to output and even more importantly, the increased market share.

Further commentary will be provided during the outlook section of the call. I'll now turn the call over to Patrick, who will provide further commentary on end market growth and segment performance.

Thank you, John. Good morning, everyone. Please move to slide five. Howmet delivered another strong quarter with all end markets growing. We are well positioned for the future and continue to invest for growth. Total revenue was up 29% in the third quarter. Excluding the net impact of the three transactions we completed this year, revenue was up 25% year-over-year, an acceleration from the 21% organic growth rate in the second quarter and 19% in the first quarter. Commercial aerospace growth was very healthy at 32%, with organic growth of 27%, driven by demand for both OE and spares. Commercial aerospace spares demand continues to increase significantly, driven by both legacy and next generation engine programs. Defense aerospace growth was 10%, with organic growth of 3% driven by spares demand, particularly on legacy fighter platforms.

Commercial transport revenue was up 28%, reflecting both volume increases as the North America market recovery continued and the pass-through of higher aluminum costs. Gas turbine growth was very strong at 45% as end market demand remains robust. Growth in other markets of 48% was largely driven by the Brunner Fastener acquisition completed in February. Spares growth remained robust across Howmet's markets. Total spares revenue was up 30% to approximately $570 million and represented approximately 21% of total revenue in the quarter. In summary, continued strong performance in commercial aerospace, defense aerospace, gas turbines, and commercial transportation. Moving to slide six, starting with the P&L. Third quarter revenue, EBITDA margin, and earnings per share all exceeded the high end of guidance. On a year-over-year basis, revenue was up 29% and 25% organically, the strongest quarterly growth rate on record for Howmet. EBITDA continued to outpace revenue growth, up 43%.

EBITDA margin increased 310 basis points to 32.5%. Incremental flow-through of revenue to EBITDA was solid at 43% year-over-year. Earnings per share were $1.46, up 54% compared to Q3 2025. Let's cover the balance sheet and cash flow. The balance sheet remains a source of strength for Howmet. The quarter end cash balance was $508 million, with quarterly free cash flow of $562 million. Net debt to trailing EBITDA improved to 1.3 times. During the quarter, we paid down $60 million of commercial paper. Liquidity remains strong with an undrawn $1 billion revolver, complemented by a $1 billion commercial paper program, with $390 million outstanding from the $450 million that was drawn to support the CAM acquisition. Turning to capital deployment, CapEx was $147 million.

The majority of our capital spend continues to be in the Engine Products segment, as we continue to invest for growth in both aerospace and gas turbines markets. Investments are backed by long-term customer contracts. In the quarter, we repurchased $500 million of common stock at an average price of $265 per share. This brings year-to-date repurchases to $1.1 billion, at an average price of $251 per share. We continue to be confident in strong future free cash flow. We increased the quarterly stock dividend in Q3 by 17%, from $0.12 per share to $0.14 per share. Let's move to slide 7 to cover the segment results for the third quarter. The Engine Products team delivered exceptional performance again across revenue, EBITDA, and EBITDA margin. Revenue grew 33% to $1.45 billion. Commercial aerospace was up 39%, and gas turbines was up 44%.

Demand continues to be strong across both original equipment and spares. EBITDA outpaced revenue growth with an increase of 57% to $567 million. EBITDA margin increased 580 basis points to 39.1%, while absorbing approximately 520 net new employees in the quarter, positioning us well for future growth. Please move to slide 8. Fastening Systems delivered another solid quarter. Revenue increased 41% to $630 million, including the impact from the CAM and Brunner acquisitions. Commercial aerospace was up 42%, and defense aerospace was up 56%. Commercial transportation was up 6% year-over-year. Excluding the impact from acquisitions, total Fasteners growth was up 10%. EBITDA increased 34% to $185 million. EBITDA margin declined 140 basis points year-over-year and 70 points sequentially, reflecting the increased revenues from CAM, which we acquired in April. Moving to slide 9. The Engineered Structures team continues to drive improvement in the business.

Revenue declined 4% to $295 million due to the divestiture of the Savannah Disc forging facility. Excluding the impact of Savannah, revenue growth was 8%. We continue to focus on higher margin and stronger return opportunities in the business. Sequentially, revenue was up 10% from the second quarter, driven by increased commercial aerospace OE demand. EBITDA increased 9% year-over-year, despite the revenue decline, and EBITDA margin expanded 290 basis points to 23.7% as we continue to focus and optimize the structure segment to maximize profitability. Please let's turn to slide 10. Forged Wheels delivered another solid quarter. Revenue was up 32%, driven by higher volumes in addition to increased aluminum cost pass-through. Volumes also increased sequentially from Q2 as the North American market recovery continued. EBITDA was $86 million, an 18% increase year-over-year.

EBITDA margins declined year over year and sequentially, reflecting the significant dilutive effect of sharply higher aluminum cost pass-through. We continue to outperform the market, driven by our premium products. Now let me turn the call back to John.

Thanks, Patrick, and let's move to slide 11 and turn the call to the outlook. Firstly, of course, we provided guides for Q4. Our glide path continues towards the conclusion of another good year for Howmet. The specific numbers will be commented upon in a few moments, plus our initial sighting shot of 2027. Regarding commercial aerospace, the flight schedules and load factors held up well during the summer months, both for domestic and international travel. Naturally, the Middle East was lower given the Iran conflict and its fallout. Oil prices, notably jet fuel and diesel, are especially high, and with the resultant effect on ticket prices, overall travel will potentially impact some schedules as we go through the winter into 2027. Having said that, we do not expect there to be any impact on our spares deliveries during this period, and indeed throughout 2027.