Howmet Aerospace Upbeat On Engine, Aftermarket Demand

Howmet Aerospace’s revenue and net income both grew at a steady clip in the third quarter thanks to strong demand for engines and within the aftermarket.

Howmet’s sales rose 11% annually to $1.8 billion while earnings per share of $0.71 beat a consensus estimate of $0.65. The Engine Products segment reached a record adjusted earnings margin of 32.5% before interest, tax, depreciation and amortization (Ebitda).

“Given the recent years of underproduction of aircraft, demand for additional spares and the record backlogs of new orders, the orderbook outlook for aircraft production and our products continues to look very healthy and should lead to higher growth for several years compared to historic norms,” CEO John Plant said in an earnings call.

Auguring especially well for Howmet is increased engine production, both for CFM’s Leap and Pratt & Whitney’s geared turbofan. “And of course, then we’ll be able to sell all of the other parts that we make for those engines, which are structural castings, low-pressure turbine parts and indeed fan blades as well,” Plant said.

He further noted that the company’s exposure to the aftermarket has risen to 17% in 2024 from 11% in 2019 and is expected to exceed 20% in the next 2-4 years. What that implies for the company and shareholders is less volatility, he said.

“The beauty of Howmet’s business model is that it earns a similar margin regardless of whether its parts are sold to the aftermarket or OEM channels,” Melius Research’s Robert Spingarn said in a Nov. 6 client note.

He notes that if Boeing’s and Airbus’ deliveries are slower than expected, Howmet will sell more spare parts. But if the two companies do reach their production rate targets, Howmet still will sell more parts at a comparable margin.

As a result, Melius Research expects Howmet’s earnings and margins should be less volatile relative to its aerospace and defense sector peers.

“Howmet is arguably in a can’t-lose situation in the commercial aero market,” Spingarn said.

That said, Howmet does remain cautious about the ability of Boeing and Airbus to boost production rates in the coming months and 2025. “I don’t think it’s clear to anyone yet the rate at which Boeing will build in the balance of November or December or indeed exactly what the rate will be in 2025,” Plant said.

Noting that Howmet’s initial 2025 revenue guidance is below current consensus, Robert Stallard of Vertical Research Partners said in a Nov. 6 client note: “We think it prudent to take a conservative stance at this juncture.”

“There is a lot of uncertainty over aero OEM build rates, particularly in the first half of 2025,” he added.