Arconic reports 5 percent increase in revenue for 2017

Arconic Inc., headquartered in New York, has reported fourth-quarter and full-year 2017 results, recording fourth-quarter revenue of $3.3 billion, up 10 percent year over year, driven by higher volumes across all segments and higher aluminum prices. Fourth quarter 2017 organic revenue was up 6 percent year over year. The company’s revenue for the full year was $13 billion, up 5 percent year over year, driven by higher volumes across all segments and higher aluminum prices, partially offset by the impact of the planned ramp-down of the company’s Tennessee Packaging operations and unfavorable product pricing and mix. Full-year 2017 organic revenue was up 5 percent year over year.

The company says it saw a net loss in the fourth quarter of $727 million, or $1.51 per share. These results include $879 million in special items, principally arising from impairments of goodwill in the forgings and extrusions business and assets in the Latin America extrusions business, the impact of U.S. tax reform and reduction of liabilities for a contingent earn-out and a separation-related guarantee. For the full year, it reported a net loss of $74 million, or 28 cents per share.

Excluding special items, fourth quarter 2017 adjusted income was $152 million, or 31 cents per share, driven by net cost savings and higher volumes, which were partially offset by unfavorable product pricing and mix, Arconic says. Excluding the impact of special items, full-year adjusted income was $618 million, or $1.22 per share.

Fourth quarter 2017 consolidated adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was $436 million, up 54 percent year over year. Consolidated adjusted EBITDA excluding special items was $446 million, a 24 percent increase year over year. Consolidated adjusted EBITDA margin excluding special items was 13.6 percent, up 150 basis points year over year, including a 190 basis point negative impact of higher aluminum prices, last-in-first-out (LIFO) and metal lag, the company says.

Full-year 2017 consolidated adjusted EBITDA was $1.8 billion, up 17 percent year over year. Consolidated adjusted EBITDA excluding special items was $1.9 billion, up 9 percent year over year. Consolidated adjusted EBITDA margin excluding special items was 14.3 percent, Arconic says, up 60 basis points year over year, including a 110 basis point year-over-year negative impact of higher aluminum prices, LIFO and metal lag.

Arconic says it continued its cost reduction progress, delivering net cost savings of $68 million, or 2.1 percent of revenue, in the fourth quarter and net cost savings of $232 million, or 1.8 percent of revenue, for the full year. The company also reports an improvement of $111 million year over year in selling, general and administrative expenses (SG&A) excluding special items.

“In 2017, Arconic made progress on growing revenue and profits and taking out cost,” Chief Executive Officer Chip Blankenship says. “However, a significant opportunity for improvement remains. Our challenge is to reinforce strengths, close gaps and identify new opportunities. My goal is to ensure that all of our businesses execute consistently and deliver outstanding returns for our shareholders.”

He adds, “Arconic has foundational strengths and incredible potential. I am convinced that if we stay focused on four priorities—customers, people, operational excellence and technology—we will deliver on Arconic’s potential.”

In the fourth quarter 2017, cash from operations was $612 million, cash used for financing activities totaled $45 million and cash used for investing activities was $236 million. Free cash flow for the quarter was $376 million. In 2017, Arconic redeemed $1.25 billion of debt, ending the year with debt of $6.8 billion and cash on hand of $2.15 billion. Cash from operations in 2017 was $701 million. Free cash flow for the year was $105 million, according to the company.

For the fourth quarter, Arconic’s Engineered Products and Solutions (EP&S) segment reports revenue of $1.5 billion, an increase of 6 percent year over year, and adjusted EBITDA of $296 million, up $31 million year over year. Increased aerospace volume in engines and airframes coupled with strong net cost savings more than offset unfavorable price and mix, the company says. The adjusted EBITDA margin was 19.9 percent, up 110 basis points year over year.

Continuing Arconic’s efforts to lower its cost profile, EP&S consolidated its organizational structure, collapsing four business units into three and reducing layers. The company says these changes are expected to save approximately $15 million in 2018 and create a streamlined organization to accelerate progress and deliver for customers and shareholders.

For the full year, EP&S saw revenue of $5.9 billion, up 4 percent year over year. It saw adjusted EBITDA of $1.2 billion, up 2 percent year over year, and an adjusted EBITDA margin of 20.6 percent, down 30 basis points year over year.

Its Global Rolled Products (GRP) segment reports revenue of $1.2 billion, an increase of 15 percent year over year, for the fourth quarter of 2017. Organic revenue was up 7 percent. Adjusted EBITDA was $124 million, up $8 million year over year, driven by strong automotive volume and net cost savings, partially offset by reduced aerospace wide-body build rates, airframe destocking, pricing pressure in regional specialties and the planned Tennessee Packaging ramp down, according to the company. The adjusted EBITDA margin was 10 percent, down 80 basis points year over year, driven by a 160 basis point negative impact of higher aluminum prices.

For the full year, the GRP segment saw revenue of $5 billion, up 3 percent year over year, while organic revenue was up 5 percent year over year. GRP saw adjusted EBITDA of $599 million, up 4 percent year over year, and an adjusted EBITDA margin of 12 percent, up 10 basis points year over year, including a 140 basis point negative impact of higher aluminum prices.

The company’s Transportation and Construction Solutions (TCS) segment delivered revenue of $518 million, an increase of 14 percent year over year. Organic revenue was up 8 percent. Adjusted EBITDA was $84 million, up $9 million year over year, as higher volume and cost reductions more than offset headwinds, including unfavorable price and mix and higher aluminum prices. Adjusted EBITDA margin was 16.2 percent, down 20 basis points year over year, including a 170 basis point negative impact of higher aluminum prices.

For the full year, the TCS segment saw revenue of $2 billion, up 10 percent year over year, and organic revenue up 7 percent year over year. Its adjusted EBITDA was $321 million, up 10 percent year over year, and an adjusted EBITDA margin of 16.2 percent, up 10 basis points year over year, including a 120 basis point negative impact.

To further enhance the company’s financial position and return capital to shareholders, Arconic’s board of directors has authorized a share repurchase program of up to $500 million of its outstanding common stock and a $500 million early debt reduction. Under the share repurchase program, the company may repurchase shares from time to time, in amounts, at prices and at such times as the company deems appropriate. Repurchases will be subject to market conditions, legal requirements and other considerations, Arconic says. The company is not obligated to repurchase any specific number of shares or to do so at any particular time, and the share repurchase program may be suspended, modified or terminated at any time without prior notice. Arconic currently has approximately 483 million shares of common stock outstanding.

In addition, Arconic says it intends to redeem in March 2018 all of its outstanding 5.72 percent notes due in 2019 in accordance with the terms of the notes and the indenture, dated Sept. 30, 1993, between Arconic and The Bank of New York Mellon Trust Co. N.A. as trustee. As of Feb. 5, 2018, the aggregate outstanding principal amount of the notes is $500 million.

Blankenship, who officially joined the company Jan. 15, has initiated a review of Arconic’s strategy and portfolio. The company says it expects to complete this review by the end of the year.

As part its drive to reduce corporate overhead, Arconic has announced that it will relocate its global headquarters in 2018 out of New York City to a more cost-effective location. The company says it expects to complete the move by the end of 2018.