Arconic says Chinese facilities are back to normal operations

Arconic Corp., the Pittsburgh-based aluminum sheet, plate and extrusion provider, has released its preliminary earnings report for the first quarter ended March 31 and provided a business update regarding the impact of the COVID-19 pandemic on its business and operations.

April 14, Arconic’s parent company prior to the April 1 separation, Howmet Aerospace Inc., reported preliminary unaudited financial results for the quarter ended March 31, including certain financial information related to its former Global Rolled Products (GRP) segment, the underlying businesses that now comprise Arconic.

On the basis of that information, for the quarter ended March 31, Arconic says it expects to report revenue of approximately $1.6 billion, which is down approximately 12 percent year over year, with organic revenue expected to be down approximately 7 percent in light of disruptions in the automotive, commercial transportation and aerospace markets driven by COVID-19 and Boeing’s 737 Max production declines somewhat offset by growth in the industrial market. Segment operating profit is expected to be approximately $170 million, which is up approximately 26 percent year over year, driven by net cost reductions and favorable aluminum prices, partially offset by volume declines. The company says its segment operating profit margin is expected to increase approximately 310 basis points year over year to approximately 10.7 percent. Depreciation and amortization is thought to be approximately $55 million in the first quarter of 2020.

Separately, as previously disclosed, Arconic says it expects its corporate costs to be in the range of $75 million to $85 million on an annual run-rate basis beginning April 1, the date of the separation, which includes approximately $20 million of depreciation and amortization.

COVID-19 updates

Arconic Chief Executive Officer Tim Myers says, “In the few short weeks since Arconic’s launch as a standalone company, market conditions have been changing rapidly and unpredictably. Notwithstanding that, we believe that Arconic’s diverse end markets and geographic composition mitigate the impact on the company from any singular area of decline. Furthermore, despite the challenges that we currently face in North America and Europe, we are seeing positive momentum at our Chinese facilities that felt the full brunt of the COVID-19 pandemic in early 2020 and are now back to essentially normal production.”

He says the company’s Russian packaging facility is running fully, noting strong end-market demand.

“Moreover, our operating footprint benefits from a highly variable cost structure, and we are actively managing operations to effectively flex activity to respond to changing automotive and aerospace market conditions,” Myers says.

“As previously announced, in response to market conditions, we took a series of proactive actions to mitigate the impacts of the pandemic on our business. By our current estimates, we expect these cost savings to improve our financial profile by approximately $200 million,” he says.

Arconic resumed operations at its New York facility April 20, Myers says, adding that the company expects to ramp-up its operations at its Tennessee facility this week. He says the company remains “excited by the opportunities for growth and the enhanced capabilities that are nearing completion.”

Myers adds, “We are pleased with the recent announcement on April 22nd by the ITC initiating antidumping and countervailing duties trade case against 18 countries on common alloy sheet products and we expect this will benefit our operations and others in industrial aluminum processing.”

Chief Financial Officer Erick Asmussen says, “Our liquidity and financial position remains strong despite the pandemic’s impact to our business. We have in excess of a billion dollars of available liquidity today (inclusive of approximately $500 million of cash on the balance sheet at the time of our separation) and our current capital structure maturities are well into the future.”

He continues, “Our business is flexible and cash requirements are countercyclical, and we expect working capital will be a source of cash in the near team and, together with the benefit of the recent management actions to reduce costs, we believe we have adequate liquidity to operate the company in spite of ongoing uncertainties.”

Arconic is a provider of aluminum sheet, plate, extrusions and architectural products for the ground transportation, aerospace, industrial, packaging and building and construction markets.