Arconic Reports Fourth Quarter 2020 and Full Year 2020 Results

Fourth Quarter 2020 Highlights

  • Sales of $1.5 billion, up 3% from prior quarter, down 14% year over year
  • Net loss of $64 million, or $0.59 per share, compared to net income of $168 million, or $1.54 per share, in fourth quarter 2019. The fourth quarter 2020 includes an after-tax charge of $108 million related to a partial annuitization of the Company’s U.S. pension obligations.
  • Adjusted EBITDA of $151 million and Adjusted EBITDA margin of 10.3%
  • Cash used for operations was $12 million and capital expenditures were $37 million
  • Quarter-end cash balance of $787 million, debt of $1.3 billion, and net debt of $504 million

Full Year 2020 Highlights

  • Sales of $5.7 billion, down 22% year over year
  • Net loss of $109 million, or $1.00 per share, compared to net income of $177 million, or $1.63 per share, in 2019. Full year 2020 includes after-tax charges of $156 million related to partial annuitizations of the Company’s U.S. and U.K. pension obligations.
  • Adjusted EBITDA of $619 million and Adjusted EBITDA margin of 10.9%
  • Cash provided from operations of $266 million and capital expenditures of $105 million for the three quarters Q2 2020 – Q4 2020
  • Implemented $260 million in cash conservation actions, above prior target of $250 million

PITTSBURGH–(BUSINESS WIRE)–Arconic Corporation (NYSE: ARNC) (“Arconic” or “the Company”) today reported fourth quarter 2020 and full year 2020 results.

Fourth Quarter 2020 Results

The Company reported revenue of $1.5 billion, up 3% from the prior quarter primarily due to growth in ground transportation and industrial product demand. Year over year, revenues were down 14% primarily reflecting weaker volumes in aerospace partially offset by growth in the industrial and packaging end markets. The Company reported a net loss of $64 million, or $0.59 per share, in fourth quarter 2020 compared with net income of $168 million, or $1.54 per share, in fourth quarter 2019. The fourth quarter 2020 net loss includes a noncash after-tax charge of $108 million related to a partial annuitization of U.S. pension obligations.

Fourth quarter 2020 Adjusted EBITDA was $151 million and Adjusted EBITDA margin was 10.3%, down sequentially primarily due to continued weakness in aerospace volumes and model year changeovers in ground transportation. Cash used for operations was $12 million and capital expenditures were $37 million. At quarter-end, the cash balance was $787 million with total available liquidity of approximately $1.5 billion.

In December, the Company implemented a partial annuitization of its U.S. pension obligation without requiring any current contribution to the pension plan. This annuitization reduced the Company’s U.S. pension obligation by approximately $240 million and resulted in expected annual savings of approximately $5 million of administrative costs. To further reduce its U.S. pension liabilities and costs, the Company expects to complete additional annuitizations during the first half of 2021.

Full-Year 2020 Results

Revenues of $5.7 billion declined 22% from 2019 levels primarily due to COVID-19 pandemic related impacts across the markets we serve and production declines due to delays associated with the Boeing 737 MAX. Net loss of $109 million, or $1.00 per share, declined from net income of $177 million, or $1.63 per share, in 2019. The full-year 2020 net loss includes after-tax charges of $156 million related to U.S. and U.K. pension annuitizations executed since separation.

Full-year 2020 Adjusted EBITDA was $619 million and Adjusted EBITDA margin was 10.9%. During the year, the Company implemented $260 million in cash conservation measures compared to its revised target of $250 million. For the three quarters Q2 2020 – Q4 2020, cash provided from operations was $266 million and capital expenditures were $105 million.

Tim Myers, Chief Executive Officer, said, “In our first nine months, we have weathered a global pandemic, made broad improvements on the corporate and operational fronts, and built a foundation for growing profitability and free cash flow over the next several years.” Mr. Myers continued, “Our fourth quarter results demonstrate a steady climb in revenue since the onset of the pandemic as several indicators point to growing customer demand in many of the markets we serve, particularly in the ground transportation and industrial sectors. In the packaging market, we are continuing commercial dialogue with key customers and scheduling qualification trials. Through the remainder of 2021, we will continue optimizing our capacity utilization to align with market demand and broader macroeconomic conditions.”

Fourth Quarter Segment Performance

Revenue by Segment (in millions)

 

Quarter ended

 

December 31,

2020

December 31,

2019

Rolled Products

$

1,141

$

1,315

Building and Construction Systems

 

236

 

263

Extrusions

 

85

 

130

Adjusted EBITDA (in millions)

 

Quarter ended

 

December 31,

2020

December 31,

2019

Rolled Products

$

139

$

141

Building and Construction Systems

 

30

 

30

Extrusions

 

(4)

 

(3)

Subtotal

 

165

 

168

Corporate

 

(14)

 

(9)

Adjusted EBITDA

$

151

$

159

Outlook

The Company expects full-year 2021 revenue to be in a range of $6.6 billion to $6.9 billion (assuming LME aluminum price of $2,030/mt and Midwest Premium of $320/mt for the full year). Adjusted EBITDA for the full-year 2021 is expected to be in a range of $675 million to $725 million. Free cash flow for full-year 2021 is expected to be in a range of ($50) million to $50 million and excludes the impacts of future annuitizations and includes approximately $350 million funding of legacy pension, OPEB, and environmental liabilities.

Arconic will hold its quarterly conference call at 10:00 AM Eastern Standard Time on February 23, 2021, to present fourth quarter and full year 2020 financial results. The call will be webcast on the Arconic website. Call information and related details are available at www.arconic.com under “Investors.”

About Arconic

Arconic Corporation (NYSE: ARNC), headquartered in Pittsburgh, Pennsylvania, is a leading provider of aluminum sheet, plate, and extrusions, as well as innovative architectural products, that advance the ground transportation, aerospace, building and construction, industrial and packaging end markets. For more information: www.arconic.com.

Dissemination of Company Information

Arconic intends to make future announcements regarding Company developments and financial performance through its website at www.arconic.com.

Forward-Looking Statements

This release contains statements that relate to future events and expectations and, as such, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include those containing such words as “anticipates,” “believes,” “could,” “estimates,” “expects,” “forecasts,” “goal,” “guidance,” “intends,” “may,” “outlook,” “plans,” “projects,” “seeks,” “sees,” “should,” “targets,” “will,” “would,” or other words of similar meaning. All statements that reflect Arconic’s expectations, assumptions, projections, beliefs or opinions about the future, other than statements of historical fact, are forward-looking statements, including, without limitation, statements regarding forecasts and expectations relating to the aerospace, ground transportation, building and construction, industrial, packaging and other end markets; statements and guidance regarding future financial results, operating performance, working capital, cash flows, liquidity and financial position; statements about cost savings and restructuring programs; statements about Arconic’s strategies, outlook, business and financial prospects; statements related to costs associated with pension and other post-retirement benefit plans; statements regarding projected sources of cash flow; statements regarding potential legal liability; statements regarding the potential impact of the COVID-19 pandemic; and statements regarding actions to mitigate the impact of COVID-19. These statements reflect beliefs and assumptions that are based on Arconic’s perception of historical trends, current conditions and expected future developments, as well as other factors Arconic believes are appropriate in the circumstances. Forward-looking statements are not guarantees of future performance. Although Arconic believes that the expectations reflected in any forward-looking statements are based on reasonable assumptions, these expectations may not be attained and it is possible that actual results may differ materially from those indicated by these forward-looking statements due to a variety of risks, uncertainties and changes in circumstances, many of which are beyond Arconic’s control. Such risks and uncertainties include, but are not limited to: (a) existing and future adverse effects in connection with COVID-19 and the potential for COVID-19 related issues to significantly heighten the other risks customarily associated with our business (including those identified below); (b) the risk that we are unable to fully realize the expected benefits of the separation, or that dissynergy costs, costs of restructuring transactions and other costs incurred in connection with the separation, once fully realized, will exceed our estimates; (c) the risk of operating our business as a standalone company, which could result in additional demands on Arconic’s resources, systems, procedures and controls, disruption of its ongoing business, and diversion of management’s attention from other business concerns; (d) deterioration in global economic and financial market conditions generally; (e) unfavorable changes in the markets served by Arconic; (f) the inability to achieve the level of revenue growth, cash generation, cost savings, benefits of our management of legacy liabilities, improvement in profitability and margins, fiscal discipline, or strengthening of competitiveness and operations anticipated or targeted; (g) competition from new product offerings, disruptive technologies, industry consolidation or other developments; (h) political, economic, and regulatory risks relating to Arconic’s global operations, including compliance with U.S. and foreign trade and tax laws, sanctions, embargoes and other regulations; (i) manufacturing difficulties or other issues that impact product performance, quality or safety; (j) the inability to meet demand for our products successfully or to mitigate the impact of cancellations of orders or reductions or delays caused by supply chain disruption; (k) a material disruption of Arconic’s operations, particularly at one or more of Arconic’s manufacturing facilities; (l) the inability to develop innovative new products or implement technology initiatives successfully; (m) challenges to or infringements on Arconic’s intellectual property rights; (n) Arconic’s inability to realize expected benefits, in each case as planned and by targeted completion dates, from acquisitions, divestitures, facility closures, curtailments, expansions, or joint ventures; (o) the impact of potential cyber attacks and information technology or data security breaches; (p) the loss of significant customers or adverse changes in customers’ business or financial condition; (q) a significant downturn in the business or financial condition of a key supplier; (r) adverse changes in discount rates or investment returns on pension assets; (s) our inability to adequately mitigate the impact of changes in aluminum prices and foreign currency exchange rates on costs and results; (t) the outcome of contingencies, including legal proceedings, government or regulatory investigations, and environmental remediation, which can expose Arconic to substantial costs and liabilities; (u) a determination by the IRS that the distribution or certain related transactions should be treated as taxable transactions; (v) risks associated with indebtedness, including potential restriction on our operations and the impact of events of default; and (w) the other risk factors summarized in Arconic’s Form 10-K for the year ended December 31, 2020 and other reports filed with the U.S. Securities and Exchange Commission (SEC). The above list of factors is not exhaustive or necessarily in order of importance. Market projections are subject to the risks discussed above and other risks in the market. The statements in this release are made as of the date of this release, even if subsequently made available by Arconic on its website or otherwise. Arconic disclaims any intention or obligation to update publicly any forward-looking statements, whether in response to new information, future events, or otherwise, except as required by applicable law.

Non-GAAP Financial Measures

Some of the information included in this release is derived from Arconic’s consolidated financial information but is not presented in Arconic’s financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). Certain of these financial measures are considered “non-GAAP financial measures” under SEC rules. These non-GAAP financial measures supplement our GAAP disclosures and should not be considered an alternative to any measure of performance or financial condition as determined in accordance with GAAP, and investors should consider Arconic’s performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of Arconic. Non-GAAP financial measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the results or financial condition as reported under GAAP. Non-GAAP financial measures presented by Arconic may not be comparable to non-GAAP financial measures presented by other companies. Reconciliations to the most directly comparable GAAP financial measures and management’s rationale for the use of the non-GAAP financial measures can be found in the schedules to this release. Arconic has not provided reconciliations of any forward-looking non-GAAP financial measures, such as adjusted EBITDA and free cash flow, to the most directly comparable GAAP financial measures because 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 metal price lag, foreign currency movements, 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. Arconic believes such reconciliations would imply a degree of precision that would be confusing or misleading to investors.

Arconic Corporation and subsidiaries

Statement of Consolidated Operations (unaudited)

(dollars in millions, except per-share amounts)

 

Quarter ended

 

December 31,

September 30,

December 31,

 

2020

2020

2019(1)

Sales

$

1,462

 

$

1,415

$

1,708

 

 

 

 

 

Cost of goods sold (exclusive of expenses below)(2),(3)

 

1,248

 

 

1,218

 

1,483

 

Selling, general administrative, and other expenses(2)

 

64

 

 

59

 

91

 

Research and development expenses(2)

 

9

 

 

8

 

11

 

Provision for depreciation and amortization

 

60

 

 

63

 

62

 

Restructuring and other charges(4)

 

127

 

 

3

 

(17

)

Operating (loss) income(3)

 

(46

)

 

64

 

78

 

 

 

 

 

Interest expense

 

21

 

 

22

 

29

 

Other expenses (income), net(2),(5)

 

1

 

 

27

 

(11

)

 

 

 

 

(Loss) Income before income taxes(3)

 

(68

)

 

15

 

60

 

(Benefit) Provision for income taxes(3)

 

(4

)

 

10

 

(108

)

 

 

 

 

Net (loss) income(3)

 

(64

)

 

5

 

168

 

 

 

 

 

Less: Net income attributable to noncontrolling interest

 

 

 

 

 

 

 

 

 

NET (LOSS) INCOME ATTRIBUTABLE TO ARCONIC CORPORATION(3)

$

(64

)

$

5

$

168

 

 

 

 

 

EARNINGS PER SHARE ATTRIBUTABLE TO ARCONIC CORPORATION COMMON SHAREHOLDERS:

 

 

 

Basic:

 

 

 

Net (loss) income(3)

$

(0.59

)

$

0.05

$

1.54

 

Weighted-average number of shares(6)

 

109,152,402

 

 

109,073,635

 

109,021,376

 

 

 

 

 

Diluted:

 

 

 

Net (loss) income(3)

$

(0.59

)

$

0.05

$

1.54

 

Weighted-average number of shares(6)

 

109,152,402

 

 

112,813,853

 

109,021,376

 

 

 

 

 

 

 

 

 

COMMON STOCK OUTSTANDING AT THE END OF THE PERIOD

 

109,205,226

 

 

109,087,034

 

 

(1)

Prior to April 1, 2020, Arconic Corporation’s financial statements were prepared on a carve-out basis, as the underlying operations of the Company were previously consolidated as part of Arconic Corporation’s former parent company’s financial statements. Accordingly, the Company’s results of operations for the quarter ended December 31, 2019 were prepared on such basis. The carve-out financial statements of Arconic Corporation are not necessarily indicative of the Company’s consolidated results of operations had it been a standalone company during the referenced period. See the Combined Financial Statements included in each of (i) Exhibit 99.1 to Arconic Corporation’s Form 10 Registration Statement (filed on February 7, 2020), (ii) the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 (filed on March 30, 2020), and (iii) the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2020 (filed on May 18, 2020), for additional information.

 

 

(2)

In preparation for the separation of Arconic Corporation from its former parent company, effective January 1, 2020, certain U.S. defined benefit pension and other postretirement plans previously sponsored by the former parent company were separated into standalone plans for both Arconic Corporation and the former parent company. Additionally, effective April 1, 2020, Arconic Corporation assumed a portion of the obligations associated with certain non-U.S. defined benefit pension plans that included participants related to both Arconic Corporation and its former parent company, as well as legacy defined benefit pension plans assigned to the Company as a result of the separation from the former parent company. As a result, beginning in the first quarter of 2020 for these U.S. plans and in the second quarter of 2020 for these non-U.S. plans, Arconic Corporation applied defined benefit plan accounting resulting in benefit plan expense being recorded in operating income (service cost) and nonoperating income (nonservice cost). In all historical periods prior to these respective timeframes, Arconic Corporation was considered a participating employer in the former parent company’s defined benefit plans and, therefore, applied multiemployer plan accounting resulting in the Company’s share of benefit plan expense being recorded entirely in operating income. Also, Arconic Corporation is the plan sponsor of certain other non-U.S. defined benefit plans that contain participants related only to the underlying operations of the Company and, therefore, the related benefit plan expense was recorded in accordance with defined benefit plan accounting in all periods presented. The following table presents the total benefit plan expense (excluding settlements and curtailments) recorded by Arconic Corporation based on the foregoing in each period presented:

 

Quarter ended

 

December 31,

September 30,

December 31,

 

2020

2020

2019

Cost of goods sold (exclusive of expenses below)

$

7

$

7

$

23

Selling, general administrative, and other expenses

 

 

 

3

Research and development expenses

 

 

 

1

Other expenses, net

 

19

 

20

 

 

$

26

$

27

$

27

(3)

Effective July 1, 2020, the Company changed its inventory cost method to average cost for all U.S. inventories previously carried at last-in, first-in (LIFO) cost. Management believes the average cost method more closely reflects the physical flow of inventories, improves comparability of the Company’s operating results with its industry peers, and provides an increased level of consistency in the measurement of inventories in the Company’s consolidated financial statements. The effects of the change in accounting principle from LIFO to average cost have been retrospectively applied to the Company’s Statement of Consolidated Operations for the quarter ended December 31, 2019. Accordingly, Net income attributable to Arconic Corporation decreased $18 (comprised of a $23 increase to Cost of goods sold and a $5 increase to Benefit for income taxes), or $0.17 per share, from the amount previously reported in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 (filed on March 30, 2020). See the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 for additional information.

 

 

(4)

In the quarter ended December 31, 2020, Restructuring and other charges includes a $140 settlement charge related to the annuitization of a portion of the Company’s U.S. defined benefit pension plan obligation and a $25 benefit for contingent consideration received related to the October 2018 sale of the Texarkana (Texas) rolling mill. In the quarter ended December 31, 2019, Restructuring and other charges includes a $20 benefit for contingent consideration received related to the October 2018 sale of the Texarkana (Texas) rolling mill.

 

 

(5)

In the quarter ended December 31, 2020, Other expenses (income), net includes a $20 benefit for the reversal of a liability previously established on April 1, 2020 related to a potential indemnification to Howmet Aerospace by Arconic Corporation for an outstanding income tax matter in Spain. In November 2020, Howmet Aerospace received a favorable ruling from Spain’s Supreme Court bringing a final conclusion to this matter as this decision may not be appealed any further. As no further income tax payment was required of Howmet Aerospace likewise Arconic Corporation no longer has a requirement to perform under the indemnification.

 

 

(6)

In the quarter ended December 31, 2020, the diluted weighted-average number of shares does not include any common share equivalents associated with outstanding employee stock awards as their effect was anti-dilutive since the Company generated a net loss for the period. In the quarter ended September 30, 2020, the difference between the diluted weighted-average number of shares and the basic weighted-average number of shares relates to common share equivalents associated with outstanding employee stock awards. Prior to April 1, 2020, the Company did not have any publicly-traded issued and outstanding common stock or any common share equivalents. Accordingly, the respective basic and diluted earnings per share for the quarter ended December 31, 2019 were calculated based on the 109,021,376 shares of Arconic Corporation common stock distributed on April 1, 2020 in connection with the completion of Arconic Corporation’s separation from its former parent company.

Arconic Corporation and subsidiaries

Statement of Consolidated Operations (unaudited), continued

(dollars in millions, except per-share amounts)

 

Year ended

 

December 31,

 

2020(1)

2019(1)

Sales

$

5,675

 

$

7,277

 

 

 

 

Cost of goods sold (exclusive of expenses below)(2),(3)

 

4,862

 

 

6,332

 

Selling, general administrative, and other expenses(2)

 

258

 

 

346

 

Research and development expenses(2)

 

36

 

 

45

 

Provision for depreciation and amortization

 

251

 

 

252

 

Restructuring and other charges(4)

 

188

 

 

87

 

Operating income(3)

 

80

 

 

215

 

 

 

 

Interest expense

 

118

 

 

115

 

Other expenses (income), net(2),(5)

 

70

 

 

(15

)

 

 

 

(Loss) Income before income taxes(3)

 

(108

)

 

115

 

Provision (Benefit) for income taxes(3)

 

1

 

 

(62

)

 

 

 

Net (loss) income(3)

 

(109

)

 

177

 

 

 

 

Less: Net income attributable to noncontrolling interest

 

 

 

 

 

 

 

NET (LOSS) INCOME ATTRIBUTABLE TO ARCONIC CORPORATION(3)

$

(109

)

$

177

 

 

 

 

EARNINGS PER SHARE ATTRIBUTABLE TO ARCONIC CORPORATION COMMON SHAREHOLDERS:

 

 

Basic:

 

 

Net (loss) income(3)

$

(1.00

)

$

1.63

 

Weighted-average number of shares(6)

 

109,073,652

 

 

109,021,376

 

 

 

 

Diluted:

 

 

Net (loss) income(3)

$

(1.00

)

$

1.63

 

Weighted-average number of shares(6)

 

109,073,652

 

 

109,021,376

 

 

 

 

 

 

 

COMMON STOCK OUTSTANDING AT THE END OF THE PERIOD

 

109,205,226

 

 

 

 

 

 

Contacts

Investor Contact
Jason Secore

Shane Rourke

(412) 315-2984

[email protected]

Media Contact
Tracie Gliozzi

(412) 992-2525

[email protected]

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