Thursday, 6 June 2024
by BD Banks
Shares in aerospace and transportation engineering products company Howmet Aerospace (NYSE: HWM) soared by 26.8% in May, according to data provided by S&P Global Market Intelligence. The move came after the release of its first-quarter earnings report, which saw the company blow past expectations for the quarter and raise its full-year guidance.
The following table illustrates how significant the full-year guidance hike was for the company.
|
Full-Year Guidance |
Current |
Previous |
Midpoint Change |
|---|---|---|---|
|
Revenue |
$7.225 billion to $7.375 billion |
$7 billion to $7.2 billion |
Up $200 million |
|
Adjusted earnings before interest, taxation, depreciation, and amortization |
$1.72 billion to $1.78 billion |
$1.6 billion to $1.67 billion |
Up $115 million |
|
Adjusted earnings per share |
$2.31 to $2.39 |
$2.10 to $2.20 |
Up $0.20 |
|
Free cash flow |
$750 million to $850 million |
$700 million to $770 million |
Up $65 million |
Data source: Howmet Aerospace.
While it is widely known that the commercial aerospace market (the source of 51% of Howmet’s sales in the first quarter) is recovering, there is still a prevailing sense of concern that needs to be addressed in the sector.
For example, the slowdown in production at Boeing on the 737 MAX and the 787 wide-body are hurting suppliers to original equipment manufacturers, like Howmet. In addition, the aerospace industry is at the epicenter of the supply chain crisis, and there are still concerns about raw-material price inflation.
Image source: Getty Images.
The good news is that Howmet’s execution in the quarter helped dispel these fears. Strong evidence suggests that Boeing’s production slowdown is resulting in more older planes being flown. Moreover, the ongoing growth in flight departures means these older planes are clocking more passenger miles, resulting in increased aftermarket demand from companies like Howmet.
Indeed, it’s a similar story at another aerospace supplier, Carpenter Technology.
In addition to 23% year-over-year growth in commercial aerospace revenue, Howmet’s defense-based revenue (15% of sales in the first quarter) rose by 12% year over year. It added up to 14% revenue growth in the quarter, and given the strength of defense orders in recent times and the ongoing commercial aerospace recovery, investors have reason to believe Howmet’s best days lie ahead.
With Boeing’s production ramp up still to come and a pickup in lucrative wide-body deliveries ahead, the outlook is bright for Howmet Aerospace.
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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.