Arconic posts revenue increase in the first quarter

New York-based Arconic Inc. has reported first-quarter 2019 financial results, which included revenue of $3.5 billion, up 3 percent year over year. Organic revenue grew 9 percent year over year on strong volumes across all segments and all key markets, including in the aerospace, defense, commercial transportation, automotive, packaging and building and construction, and favorable aerospace pricing.

Net income in the first quarter of 2019 was $187 million, or 39 cents per share, versus $143 million, or 29 cents per share, in the first quarter of  2018. Net income excluding special items was $208 million, 43 cents per share, in the first quarter of 2019 versus $169 million, or 34 cents per share, in the first quarter of 2018. Special items in the first quarter 2019 were $21 million, principally related to charges associated with cost reduction initiatives, partially offset by a credit associated with the elimination of certain postretirement benefits.

First quarter 2019 operating income was $374 million, an increase of 12 percent year over year. Operating income excluding special items was $397 million, up 15 percent year over year, as higher volumes and favorable product pricing more than offset the impact of transitioning Tennessee Packaging to industrial products.

Arconic Chairman and Chief Executive Officer John Plant says, “In the first quarter 2019, the Arconic team improved revenue, expanded margins, improved adjusted free cash flow year over year and delivered the highest quarterly adjusted operating income, adjusted earnings per share and RONA (return on net assets) since 2016 separation. We expect this positive trend to continue in the second quarter. As plans for separation move forward, we are also acting swiftly to reduce costs to be in line with industry-leading peers and are targeting the sale of certain businesses that are noncore to either of the future entities. These actions will help drive the margin performance of the company.”

Arconic reports that it ended the first quarter 2019 with cash on hand of $1.3 billion. Cash used for operations was $258 million, driven by typical seasonal first-quarter build in working capital and semiannual interest payments. Cash used for financing activities totaled $741 million, reflecting the impact of the accelerated share repurchase program of $700 million. Cash provided from investing activities was $42 million. Adjusted free cash flow for the quarter was negative $266 million, up $151 million year over year principally from lower pension contributions. In the first quarter of 2018, cash used for operations was $436 million, cash used for financing activities totaled $542 million and cash provided from investing activities was $29 million.

In the first quarter 2019, Arconic transferred its aluminum extrusions operations from the engineered products and solutions (EP&S) segment to the global rolled products (GRP) segment, based on synergies with GRP including similar customer base, technologies and manufacturing capabilities. 

Transportation and construction solutions (TCS) reported revenue of $535 million, relatively flat year over year. Organic revenue was up 7 percent. Segment operating profit was $87 million, up $20 million, or 30 percent, year over year, driven by higher volume in commercial transportation and building and construction, as well as net cost savings, the company says. Segment operating margin was 16.3 percent, 380 basis points greater than in the first quarter of 2018.

Arconic says it expects second-quarter 2019 earnings per share excluding special items to be in a range of 46 cents to 51 cents.

The company says it has increased the annualized cost reduction target to save approximately $230 million on a run-rate basis versus its initial $200 million target that was announced in February 2019. As a result of taking quick action in the first quarter, Arconic says it expects to capture approximately $120 million of savings in 2019.

The company says its share buyback of $700 million of common stock announced Feb. 19 is complete. Arconic received 31.9 million shares Feb. 21, and an additional 4.5 million shares April 29. The average share price was approximately $19.21. Three hundred million dollars remains authorized for share repurchases through the end of 2020. Approximately 449 million shares were outstanding as of April 29.

Arconic also says its Separation Project Team has fixed the business perimeters of the two public companies that will be headquartered in Pittsburgh. Global rolled products will comprise rolled aluminum products and aluminum extrusions. The engineered products and forgings business will include engine components, fastening systems and engineered structures. The businesses of the current TCS segment will be divided: Arconic will retain the building and construction systems business, which it says it will include in global rolled products, and forged aluminum wheels will become part of engineered products and forgings. Arconic says it is targeting the initial filing of a Form 10 with the Securities and Exchange Commission in the fourth quarter of 2019 and the completion of the separation in the second quarter of 2020. Form 10 is used to register a class of securities for potential trading on U.S. exchanges.

The Arconic board of directors approved the reduction of the quarterly common stock dividend from 6 cents to 2 cents per share.