Arconic sees modest increase in revenue for 2019

Pittsburgh-based Arconic Inc. has reported its fourth-quarter and annual 2019 results. Its fourth-quarter revenue totaled $3.4 billion, a decrease of 2 percent year-over-year. Organic revenue was up 1 percent year over year on growth in the aerospace, packaging and industrial markets and favorable product pricing, which was largely offset by weakness in the automotive, commercial transportation and building and construction markets, according to the company.

Arconic reported net income of $309 million, or 70 cents per share, in the fourth quarter of 2019 versus net income of $218 million, 44 cents per share, in the fourth quarter of 2018. Net income excluding special items was $234 million, or 53 cents per share, in the fourth quarter of 2019, versus $162 million, or 33 cents per share, in the fourth quarter of 2018. Net income for the last quarter of 2019 included $75 million of income from special items, including discrete and special tax items principally related to U.S. tax basis adjustments to foreign subsidiaries, partially offset by separation costs.

2019 net income was $470 million, or $1.03 per share, versus net income of $642 million, or $1.30 per share, in 2018. 2019 net income excluding special items was $971 million, or $2.11 per share, versus $676 million, or $1.36 per share, in 2018. Net income in 2019 included $501 million of expenses from special items, principally related to charges associated with noncash asset impairments and separation costs, partially offset by discrete and special tax items principally related to U.S. tax basis adjustments to foreign subsidiaries, according to the company.

Fourth-quarter 2019 operating income was $416 million, versus operating income of $323 million in fourth-quarter 2018. Operating income excluding special items was $444 million, an increase of 37 percent year over year, driven by net cost reductions, favorable product pricing and favorable aluminum and raw material costs, partially offset by lower volumes in automotive and commercial transportation, the company reports.

Full-year 2019 operating income was $1 billion versus $1.3 billion in 2018. Operating income excluding special items for 2019 was $1.8 billion versus $1.4 billion in 2018, driven by favorable product pricing; net cost reductions; volume growth in aerospace, packaging and commercial transportation markets; and favorable aluminum and raw material costs. These impacts partially were offset by unfavorable product mix.

Arconic Chairman and Chief Executive Officer John Plant says, “In 2019, the Arconic team delivered improved revenue, adjusted operating income, adjusted operating income margin, adjusted free cash flow and adjusted earnings per share. Arconic’s 2019 return on net assets improved by 450 basis points year over year to 13.7 percent.”

The company says it ended the year with a cash balance of $1.7 billion.

Arconic’s Engineered Products and Forgings (EP&F) segment reported quarterly revenue of $1.7 billion, an increase of 1 percent year over year. Organic revenue increased 2 percent, driven by aerospace growth, partially offset by weakness in commercial transportation, according to the company. Segment operating profit was $354 million, up $86 million, or 32 percent, year over year, driven by net cost reductions, favorable product pricing, lower raw material costs and volume increases, partially offset by mix, the company says. Segment operating profit margin was 20.4 percent, up 480 basis points year over year.

For the full year, EP&F revenue was $7.1 billion, up 5 percent year over year; organic revenue was up 6 percent year over year; segment operating profit was $1.4 billion, up $285 million year over year; and segment operating profit margin was 19.6 percent, up 330 basis points year over year.

The company’s Global Rolled Products (GRP) segment reported quarterly revenue of $1.7 billion, down 5 percent year over year. Organic revenue was flat year over year. Segment operating profit was $150 million, up $57 million, or 61 percent year over year, driven by net cost reductions, favorable aluminum prices, favorable pricing in industrial and commercial transportation and the transition of Tennessee’s North American packaging business to more profitable industrial products, Arconic says. These impacts were partially offset by weakness in automotive, commercial transportation and building and construction markets. Segment operating profit margin was 9 percent, up 370 basis points year over year.

GRP 2019 total revenue was $7.1 billion, down 2 percent year over year; organic revenue was up 6 percent year over year; segment operating profit was $625 million, up $144 million year over year; and segment operating profit margin was 8.8 percent, up 210 basis points year over year.

For 2020, the company says it expects revenue in the range of $13.9 billion to $14.2 billion; earnings per share excluding special items ranging from $2.22 to $2.42 and adjusted free cash flow of $800 million to $900 million

Arconic adds that it expects first-quarter 2020 earnings per share to range from 47 cents to 53 cents.

Regarding its separation into two companies, Arconic says it expects that to be completed before the opening of the market on April 1, though it remains subject to the satisfaction of certain conditions and could change as a result.

Howmet Aerospace Inc. and Arconic Corp. will hold Investor Days Feb. 25, both of which will be available via webcast, the company says. The EP&F businesses (engine products, fastening systems, engineered structures and forged wheels) will remain in the existing company, which will be renamed Howmet Aerospace Inc. at separation and change its stock ticker from “ARNC” to “HWM.” The GRP businesses (global rolled products, aluminum extrusions and building and construction systems) will comprise the new company, which will be named Arconic Corp. at separation and apply for authorization to list its common stock on the New York Stock Exchange under the symbol “ARNC,” the company says.

The company says it entered into an employment letter agreement Jan. 13 with Timothy D. Myers providing for his appointment as the chief executive officer of Arconic Corp. effective upon its legal separation from the company. Until the separation, he will continue to serve as executive vice president and group president, GRP, which includes Extrusions and Building and Construction Systems.

In the fourth quarter of 2019, Arconic completed the previously announced sale of its forgings business in the U.K. for net proceeds of $59 million in cash. Arconic says it expects to close the previously announced sale of its aluminum rolling mill in Itapissuma, Brazil, in the first quarter 2020 for approximately $50 million in cash and to close the previously announced sale of its hard alloy extrusions plant in South Korea in the first quarter 2020 for approximately $61 million in cash. In 2019, the company says it signed or closed divestitures expected to generate approximately $190 million in net proceeds.