Arconic boosts yearly revenue outlook despite missed quarterly earnings | Business & Economy |

2022-05-07 00:52:22 By : Ms. Nicole Wang

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Aluminum coils at Arconic Davenport Works.

A thick plate stretcher and a heat treat furnace were installed at Arconic's Davenport Works plant in 2017.

Arconic boosted its revenue targets and earnings projections for the year as the Pittsburgh-based company with operations in the Quad-Cities expects to continue benefiting from higher aluminum prices.

That despite quarterly earnings falling short of analysts' expectations. Company net income fell to $42 million in the first quarter of 2022 — or 39 cents a share — from $52 million, or 46 cents a share, compared to the same quarter last year.

Revenue rose 31% to $2.2 billion year-over-year and was up 2% from the prior quarter. Wall Street analysts expected the aluminum supplier to earn 44 cents a share on revenue of $2.25 billion, according to MarketWatch.

Arconic — which operates Arconic Davenport Works in Riverdale — reported adjusted earnings of $205 million for the first quarter, an increase of 15% year over year, driven by higher aluminum prices, ongoing recovery in aerospace, a ramp-up in packaging sales in the United States and increased spending on non-residential construction in North America.

Sales growth, though, was partially offset by weak ground transportation sales due to reduced automotive production and temporary shutdowns by auto parts manufacturers related to an ongoing semiconductor shortage and supply chain issues.

"We are well on pace to deliver a second consecutive year of double-digit growth," despite several headwinds, company CEO Tim Myers told investors during a Tuesday earnings call. Most notably, he said, are steep inflation, lingering semiconductor issues impacting automotive customers, and "managing the complex effects of the conflict in Ukraine" impacting the company's Russian operations.

"Against those headwinds, we are successfully countering inflation through a combination of price increases and cost savings initiatives," including expanding operations at its Davenport facility, which remain on track, Myers said. "And we continue to adapt to weakness in automotive build rate by pivoting capacity to other markets wherever possible."

Arconic supplies aluminum sheet, plate and extruded products to global customers in aerospace, automotive, commercial transportation, defense, industrial and building and construction industries.

It is a major Quad-City employer with roughly 2,000 employees, according to the Quad Cities Chamber of Commerce.

Looking ahead, Arconic revised its 2022 outlook to reflect the impact of higher aluminum prices on revenue and working capital and improved profitability due to a stronger building and construction market. Sales in the latter market increased 22% year over year, the company reported. Aerospace sales increased 32% year over year, and Myers projected aerospace revenue to reach pre-pandemic levels sometime in 2024.

Overall, company officials said they expect revenue for the year of between $10.1 billion and $10.5 billion compared to earlier projections of $9.9 billion to $10.3 billion.

Company Chief Financial Officer Erick Asmussen said company officials expect annual adjusted earnings of $820 million to $870 million compared to a prior outlook of $800 million to $850 million.

"Despite the ongoing challenges, we remain excited for the outlook for automotive production in the near- to medium-term due to depleted dealership inventory level and pent-up consumer demand," Myers said.

Arconic announced a pause in new contracts in Russia in mid-March, but continues to conduct business in the country that fulfills existing obligations.

The company operates a facility in Samara, Russia, that produces sheets, plates, extrusions and forgings, primarily for food and beverage packaging. The facility accounted for about 16% of the company's revenue last year and 12% of adjusted earnings, which company officials expect will drop to somewhere between $40 million to $80 million for the year, compared with $87 million in 2021, due to uncertainty related to government sanctions, supply chain and customer demand.

Operations in Russia continue to run at near full capacity, Myers said. And while "highly concerned about the safety and well-being of our 3,000 loyal employees" in Russia, "any abrupt or unapproved changes to our operating pattern in our operating facility could expose our employees to criminal charges" or other actions based on existing legal proceedings with Russian authorities.

Asmussen noted that while some companies have announced they would donate profits from Russian operations to Ukranian relief efforts, doing so is not "a practical option" for the company as "our cash in Russia is trapped there as a condition of litigation with the Russian government."

As part of the litigation, company officials said Russian authorities have imposed injunctions prohibiting, among other actions, the payment of dividends, removing cash from the country or disposing of assets in the country without approval from the Russian government.

Arconic, though, has said it will grant $300,000 to humanitarian relief organizations and will match personal donations made by its employees.

“We continue to be horrified by the conflict in Ukraine," Myers said. "It is an unnecessary human tragedy outrageous in its nature, and we support efforts for a peaceful resolution. … We are actively pursuing additional deliberate and responsible options for our business in Russia."

Company officials on Tuesday did not address contract negotiations between Arconic and the United Steelworkers union and the possibility of a worker strike.

The new contract will set wages and benefits for employees at four Arconic locations — Riverdale; Lafayette, Ind.; Massena, N.Y.; and Alcoa, Tenn.

The current three-year contract expires May 15.

Recent labor negotiations at two of the area's other largest employers, John Deere and Eaton, were not settled before strikes by union members.

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Contract negotiations between Arconic and representatives from the United Steelworkers union are slated to start Tuesday

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Aluminum coils at Arconic Davenport Works.

A thick plate stretcher and a heat treat furnace were installed at Arconic's Davenport Works plant in 2017.

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