Howmet Aerospace (NYSE: HWM) beat Wall Street expectations for the second quarter thanks to strong performance across all segments. The company also set targets for the year that were above estimates.
Investors are buying in, sending shares of Howmet up 14% as of 10:15 a.m. ET.
Demand-fueled beat
Howmet is a relatively new public company with a long history. The company is a manufacturer of components for aircraft and jet engines as well as aluminum wheels for heavy trucks. It was forged together by Alcoa 20 years ago, only to be spun out first as part of Arconic and then as Howmet.
The company earned $0.67 per share on revenue of $1.88 billion in the second quarter, topping Wall Street's $0.60 per share on sales of $1.84 billion estimate. Two segments, engine products and engineered structures, grew revenue by 5% or more compared to the previous quarter, and the engine products EBITDA margin jumped by 320 basis points to 31.3%.
Howmet sees further momentum up ahead. The company guided for full-year earnings of between $2.53 to $2.57 per share on sales of $7.4 billion to $7.48 billion. Coming into earnings Wall Street had forecasted $2.39 per share in earnings on sales of $7.3 billion.
"The outlook for commercial aerospace continues to be robust, with strong travel demand and an aging aircraft fleet, leading to an extremely high backlog at the aircraft [original equipment manufacturers]," CEO John Plant said in a statement.
Is Howmet a buy?
There is a worldwide need for more aircraft, and with Boeing and Airbus struggling to meet that demand, aerospace suppliers like Howmet are enjoying robust demand for spare parts and other components. Commercial aerospace sales were up 27% year over year in the quarter, and the company is forecasting continued strong demand in the quarters to come.
Howmet, finally freed from its corporate baggage, is now able to capitalize on that demand. The company reported $342 million in free cash flow in the quarter, allowing it to repurchase $60 million in stock and work on paying down net debt that is about 1.7 times trailing EBITDA.
With strong tailwinds at its back, Howmet can fly higher from here.
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Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
