Arconic to Potentially Spin Off Unit

NEW YORK–(BUSINESS WIRE)–Arconic Inc. (NYSE: ARNC) today reported fourth quarter 2018 and full year 2018 results. Arconic Chairman and Chief Executive Officer John Plant said, “Having been a Director of Arconic since 2016 and Chairman of the Board since 2017, I have a historical perspective of the Company and understand what we can achieve. I am pleased to lead Arconic to reach that potential.” Mr. Plant added, “In 2018, Arconic delivered solid revenue growth and improved operational performance. With Elmer Doty as President and Chief Operating Officer, I am focused on further enhancing our operations and charting a new strategic direction to deliver value for shareholders.”

Mr. Plant continued, “After a rigorous and comprehensive process, we did not receive a proposal for a full-company transaction that we believe was in the best interests of our shareholders. The Board sees more shareholder value creation through a restructuring of the Company. As part of the strategy and portfolio review, we have determined to separate the portfolio into Engineered Products & Forgings and Global Rolled Products. In addition, we will also explore the potential sale of businesses that do not best fit into Engineered Products & Forgings and Global Rolled Products.”

Revenues in the fourth quarter 2018 were $3.5 billion, up 6% year over year. Fourth quarter 2018 organic revenue1 was up 10% year over year, driven by higher volumes across all segments with double digit growth in most major end markets. For full year 2018, revenue was $14.0 billion, up 8% year over year. Full year 2018 organic revenue1 was up 7% year over year.

Net income in the fourth quarter was $218 million, or $0.44 per share. These results include $56 million of income from special items, primarily related to a gain on the sale of the Texarkana, Texas, rolling mill and discrete tax items, partially offset by pension plan settlement charges and a loss on the sale of the Eger, Hungary, forgings business. Fourth quarter 2017 net loss was $727 million, or $1.51 per share, and included the impairment of goodwill. For full year 2018, the Company reported net income of $642 million, or $1.30 per share, versus a net loss of $74 million, or $0.28 per share, in full year 2017.

Net income excluding special items was $162 million, or $0.33 per share, in the fourth quarter of 2018, versus $152 million, or $0.31 per share, in the fourth quarter of 2017. The increase was driven by higher volumes and lower expenses for pension, interest, and taxes, largely offset by higher aluminum prices and unfavorable product mix. Full year 2018 net income excluding special items was $676 million, or $1.36 per share, versus $618 million, or $1.22 per share, in the full year 2017.

Fourth quarter 2018 operating income was $323 million versus an operating loss of $433 million in the fourth quarter of 2017. Operating income excluding special items was $323 million versus $343 million in the fourth quarter of 2017, down 6% year over year, as volume growth was more than offset by aluminum price impacts and unfavorable product mix. Full year 2018 operating income was $1.3 billion versus $480 million in the full year 2017. Operating income excluding special items for full year 2018 was $1.4 billion versus $1.5 billion in the full year 2017.

Mr. Plant added, “Our team improved quality and delivery to customers in the face of increasing demand and record level shipment volumes in some segments. Our continuous improvement efforts are gaining traction. Furthermore, we have commenced plans to reduce operating costs by approximately $200 million on an annual run-rate basis.”

Arconic ended the year with cash on hand of $2.3 billion. For the full year 2018 and 2017: cash provided from operations was $217 million and cash used for operations was $39 million, respectively; cash used for financing activities was $649 million and $1.0 billion, respectively; and cash provided from investing activities was $565 million and $1.3 billion, respectively. Adjusted Free Cash Flow for the full year 2018 was $465 million, nearly tripling year over year.

Fourth Quarter 2018 Segment Performance 2

Engineered Products and Solutions (EP&S)

EP&S reported revenue of $1.6 billion, an increase of 8% year over year. Organic revenue1 was up 9%, driven by volume growth in aerospace engines and defense. Segment operating profit was $220 million, down $8 million year over year, as unfavorable product mix and manufacturing challenges in the Engineered Structures business, including the now resolved forging press outage in the Cleveland facility, were partially offset by volume growth across all business units. Segment operating margin was 13.6%, down 170 basis points year over year.

Global Rolled Products (GRP)

GRP reported revenue of $1.4 billion, an increase of 9% year over year. Organic revenue1 was up 13%. Segment operating profit was $77 million, down $14 million year over year, driven by aluminum price headwinds, higher transportation costs and scrap spreads, which were partially offset by pricing actions and higher volume in automotive, commercial transportation and aerospace. Segment operating margin was 5.7%, down 160 basis points year over year, including a 150 basis point negative impact from aluminum prices.

Transportation and Construction Solutions (TCS)

TCS reported revenue of $497 million, a decrease of 6% year over year. Organic revenue1 was up 4%. Segment operating profit was $63 million, down $14 million year over year, driven by aluminum price headwinds, which were partially offset by growth in commercial transportation and building and construction. Segment operating margin was 12.7%, down 190 basis points year over year, including a 330 basis point negative impact from aluminum prices.

Full Year 2018 Segment Performance 2

Segment performance in 2018 included the following:

  • EP&S revenue of $6.3 billion, up 6% year over year; segment operating profit was $891 million, down $73 million year over year; segment operating margin was 14.1%, down 210 basis points year over year.
  • GRP revenue of $5.6 billion, up 12% year over year; organic revenue1 up 8% year over year; segment operating profit was $386 million, down $38 million year over year; segment operating margin was 6.9%, down 160 basis points year over year, including a 100 basis point negative impact of higher aluminum prices.
  • TCS revenue of $2.1 billion, up 6% year over year; organic revenue1 up 9% year over year; segment operating profit was $304 million, up $14 million year over year; segment operating margin was 14.3%, down 10 basis points year over year, including a 270 basis point negative impact of higher aluminum prices.

Full Year 2019 Guidance*

Arconic is providing the following 2019 guidance:

Full Year 2019
Revenue $14.3-$14.6 billion
Adjusted Earnings Per Share $1.55-$1.65
Adjusted Free Cash Flow $400-$500 million

Arconic has not provided reconciliations of the forward-looking non-GAAP financial measures to the most directly comparable GAAP financial measures because Arconic is unable to quantify certain amounts that would be required to be included in the GAAP measures without unreasonable efforts, and Arconic believes such reconciliations would imply a degree of precision that would be confusing or misleading to investors. In particular, such reconciliations are not available without unreasonable efforts due to the variability and complexity with respect to the charges and other components excluded from the non-GAAP measures, such as the effects of foreign currency movements, equity income, gains or losses on sales of assets, taxes, and any future restructuring or impairment charges. These reconciling items are in addition to the inherent variability already included in the GAAP measures, which includes, but is not limited to, price/mix and volume.

Strategy and Portfolio Review

The Company commenced plans to reduce operating costs by approximately $200 million on an annual run-rate basis. The program is designed to maximize the impact in 2019.

Arconic also announced as part of its strategy and portfolio review that it will separate into Engineered Products & Forgings and Global Rolled Products, with a spin-off of one of the businesses. In addition, it will also explore the potential sale of businesses that do not best fit into Engineered Products & Forgings or Global Rolled Products.

The Company also intends to execute its previously authorized $500 million share repurchase program in the first half of 2019. The Board has also authorized an additional $500 million of share repurchases, effective through the end of 2020.

Arconic expects to reduce its quarterly common stock dividend from $0.06 to $0.02 per share.

John C. Plant Named Chairman and Chief Executive Officer, Elmer L. Doty Named President and Chief Operating Officer

As previously announced on February 6, 2019, the Board appointed John C. Plant, current Chairman of the Board, to serve as Chairman and Chief Executive Officer. The Board also appointed Elmer L. Doty, a current Director, to serve as President and Chief Operating Officer. These appointments were effective immediately.

Closed on the Sale of Texarkana, TX, Rolling Mill

In the fourth quarter of 2018, Arconic closed on the sale of its idled Texarkana, Texas, rolling mill to Ta Chen International, Inc., a U.S. subsidiary of aluminum and stainless steel distributor Ta Chen Stainless Pipe Co., Ltd. Under the terms of the transaction, the Company sold the Texarkana facility for approximately $300 million in cash, plus additional contingent consideration of up to $50 million.

Closed on the Sale of Eger, Hungary, Forgings Business

In the fourth quarter of 2018, Arconic closed on the sale of its Eger, Hungary, forgings business to Angstrom Automotive Group LLC. The Company recorded a restructuring-related charge representing a pre-tax loss on the sale of $43 million. The charge primarily relates to the non-cash impairment of the net book value of the business.

Arconic will hold its quarterly conference call at 10:00 AM Eastern Time on February 8, 2019, to present fourth quarter 2018 and full year 2018 financial results. The call will be webcast via www.arconic.com . Call information and related details are available at www.arconic.com under “Investors;” presentation materials will be available at approximately 8:00 AM Eastern Time on February 8.

About Arconic

Arconic (NYSE: ARNC) creates breakthrough products that shape industries. Working in close partnership with our customers, we solve complex engineering challenges to transform the way we fly, drive, build and power. Through the ingenuity of our people and cutting-edge advanced manufacturing techniques, we deliver these products at a quality and efficiency that ensure customer success and shareholder value. For more information: www.arconic.com. Follow @arconic: TwitterInstagramFacebookLinkedIn and YouTube.


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