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Aerospace and defense company Howmet (NYSE:HWM) announced better-than-expected results in Q2 CY2024, with revenue up 14.1% year on year to $1.88 billion. Guidance for next quarter's revenue was also optimistic at $1.86 billion at the midpoint, 2.3% above analysts' estimates. It made a non-GAAP profit of $0.67 per share, improving from its profit of $0.44 per share in the same quarter last year.
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Howmet (HWM) Q2 CY2024 Highlights:
- Revenue: $1.88 billion vs analyst estimates of $1.83 billion (2.5% beat)
- EPS (non-GAAP): $0.67 vs analyst estimates of $0.60 (11.6% beat)
- Revenue Guidance for Q3 CY2024 is $1.86 billion at the midpoint, above analyst estimates of $1.81 billion
- The company lifted its revenue guidance for the full year from $7.3 billion to $7.44 billion at the midpoint, a 1.9% increase
- EPS (non-GAAP) Guidance for Q3 CY2024 is $0.64 at the midpoint, above analyst estimates of $0.60
- EBITDA Guidance for the full year is $1.87 billion at the midpoint, above analyst estimates of $1.77 billion
- Gross Margin (GAAP): 31.5%, up from 27.2% in the same quarter last year
- Free Cash Flow of $342 million, up from $95 million in the previous quarter
- Market Capitalization: $33.82 billion
Inventing the first forged aluminum truck wheel, Howmet (NYSE:HWM) specializes in lightweight metals engineering and manufacturing multi-material components used in vehicles.
AerospaceAerospace companies often possess technical expertise and have made significant capital investments to produce complex products. It is an industry where innovation is important, and lately, emissions and automation are in focus, so companies that boast advances in these areas can take market share. On the other hand, demand for aerospace products can ebb and flow with economic cycles and geopolitical tensions, which can be particularly painful for companies with high fixed costs.
Sales GrowthA company’s long-term performance can indicate its business quality. Any business can put up a good quarter or two, but many enduring ones tend to grow for years. Howmet's demand was weak over the last five years as its sales fell by 7.7% annually, a rough starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Howmet's annualized revenue growth of 15.8% over the last two years is above its five-year trend, suggesting its demand recently accelerated.
We can dig further into the company's revenue dynamics by analyzing its most important segments, Engine products and Fastening systems, which are 49.6% and 21% of revenue. Over the last two years, Howmet's Engine products revenue (aircraft engines, industrial turbines) averaged 18.1% year-on-year growth while its Fastening systems revenue (connector products and tools) averaged 19.1% growth.
This quarter, Howmet reported robust year-on-year revenue growth of 14.1%, and its $1.88 billion of revenue exceeded Wall Street's estimates by 2.5%. The company is guiding for revenue to rise 11.9% year on year to $1.86 billion next quarter, slowing from the 15.7% year-on-year increase it recorded in the same quarter last year. Looking ahead, Wall Street expects sales to grow 7% over the next 12 months, a deceleration from this quarter.
Operating MarginHowmet has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 16.1%.
Looking at the trend in its profitability, Howmet's annual operating margin rose by 6.1 percentage points over the last five years, showing its efficiency has meaningfully improved.
This quarter, Howmet generated an operating profit margin of 21.2%, up 3.9 percentage points year on year. This increase was a welcome development and shows it was recently more efficient because its expenses grew slower than its revenue.
EPSAnalyzing long-term revenue trends tells us about a company's historical growth, but the long-term change in its earnings per share (EPS) points to the profitability of that growth–for example, a company could inflate its sales through excessive spending on advertising and promotions.
Howmet's EPS grew at a remarkable 12.5% compounded annual growth rate over the last five years, higher than its 7.7% annualized revenue declines. This tells us management adapted its cost structure in response to a challenging demand environment.
Diving into the nuances of Howmet's earnings can give us a better understanding of its performance. As we mentioned earlier, Howmet's operating margin expanded by 6.1 percentage points over the last five years. On top of that, its share count shrank by 7.6%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.
Like with revenue, we also analyze EPS over a shorter period to see if we are missing a change in the business. For Howmet, its two-year annual EPS growth of 34.4% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.
In Q2, Howmet reported EPS at $0.67, up from $0.44 in the same quarter last year. This print easily cleared analysts' estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Howmet to grow its earnings. Analysts are projecting its EPS of $2.23 in the last year to climb by 16.3% to $2.59.
Key Takeaways from Howmet's Q2 Results We enjoyed seeing Howmet exceed analysts' revenue and earnings expectations this quarter. We were also glad its full-year revenue, EPS, and EBITDA guidance beat Wall Street's estimates. Zooming out, we think this was a fantastic quarter that should have shareholders cheering. The stock traded up 6.2% to $88 immediately after reporting.
