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Howmet Aerospace Rises on Robust Aerospace Demand, Expands Profit Outlook

Isaac LaneFriday, May 2, 2025 2:01 am ET

17min read

Howmet Aerospace (HWM) has raised its 2025 profit forecast, signaling confidence in sustained demand for aerospace components amid strong commercial and defense sector tailwinds. The company’s first-quarter results, marked by record revenue and margin expansion, underscore its ability to capitalize on industry trends while navigating macroeconomic headwinds.

Q1 Results Highlight Operational Strength
In Q1 2025, Howmet reported revenue of $1.94 billion, a 6% year-over-year increase, driven by a 9% surge in commercial aerospace sales. Net income rose to $344 million ($0.84 per share), up from $243 million ($0.59 per share) in Q1 2024. Adjusted EBITDA excluding special items jumped to $560 million, a 28% increase, with margins expanding by 480 basis points to 28.8%. Free cash flow reached $134 million, extending eight consecutive quarters of positive results.

The company revised its full-year 2025 guidance: revenue is now expected to range between $7.88 billion and $8.18 billion, up from prior projections. Adjusted EBITDA is targeted at $2.225–2.275 billion, with a baseline margin of 28.2%, while adjusted EPS is forecast to grow to $3.36–3.44, a 51% increase from Q1 2024. Free cash flow guidance was also raised to $1.10–1.20 billion.

Segment Performance: Aerospace Growth Outpacing Challenges
Key segments contributed unevenly to the results:
- Engine Products, which include turbine blades and engine components, saw revenue climb 13% to $996 million, fueled by commercial and defense markets. Adjusted EBITDA rose 31% to $325 million, with margins improving 450 basis points to 32.6%.
- Fastening Systems, critical for aircraft assembly, grew 6% to $412 million, driven by commercial aerospace demand. Adjusted EBITDA surged 38% to $127 million, with margins up 710 basis points to 30.8%.
- Engineered Structures revenue rose 8% to $282 million, supported by defense aerospace contracts and data center infrastructure projects. Margins jumped 720 basis points to 21.3%.
- Forged Wheels, however, declined 13% to $252 million due to softness in North American commercial transportation. Despite this, adjusted EBITDA remained stable at $68 million.

The strong performance in aerospace segments reflects the industry’s recovery, with record OEM backlogs for fuel-efficient aircraft like the Boeing 737 MAX and Airbus A320neo. Defense spending, driven by global geopolitical tensions, also bolstered demand.

Strategic Capital Allocation and Balance Sheet Strength
Howmet returned $125 million to shareholders in Q1 through stock buybacks at an average price of $124.24, followed by an additional $100 million in April at $125.61. A 100% dividend hike to $0.10 per share further signals confidence.

Fitch Ratings recently upgraded Howmet’s long-term credit rating to BBB+ (investment grade), reflecting its improved liquidity and reduced leverage. The company’s net debt-to-EBITDA ratio has dropped to 1.6x, down from 2.8x in 2023.

Risks and Mitigation Strategies
Howmet faces headwinds, including tariffs on Chinese steel (a key input) and uncertainties in commercial transportation. Management emphasized plans to pass tariff costs to customers and focus on high-margin aerospace products. The defense and industrial sectors, now accounting for over 40% of revenue, provide a buffer against cyclical downturns in commercial transport.

Conclusion: A Strong Position in a Growing Sector
Howmet’s revised guidance reflects a compelling story of operational excellence and strategic focus. With adjusted EBITDA margins now above 28%, the company is leveraging its technological leadership in lightweight, fuel-efficient components to capitalize on the $5.4 trillion aerospace market.

The stock’s 12-month forward P/E ratio of 15x compares favorably to peers like Precision Castparts (now part of Berkshire Hathaway) at 20x, suggesting undervaluation. Meanwhile, its free cash flow yield of 5.8% offers a compelling return for investors.

Despite risks, Howmet’s execution and balance sheet strength position it to outperform peers. As defense spending and commercial aircraft demand remain robust, the company’s ability to convert growth into cash flows makes it a compelling investment in an aerospace sector poised for long-term expansion.

Data as of Q1 2025. Past performance is not indicative of future results.

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