Howmet Aerospace HWM is grappling with weakness in the Engineered Structures segment due to softness in the defense market. Supply-chain disruptions, raw material cost inflation and foreign currency headwinds are added concerns for the company.
Let’s delve deeper to unearth the factors that are weighing on this Zacks Rank #4 (Sell) company’s performance.
Weakness in the defense aerospace market and a decline in Boeing 787 production are weighing on the Engineered Structures segment’s performance, revenues from which declined 3% year over year in the third quarter of 2022. Boeing 787 production declines are also affecting the performance of the Fasting Systems segment.
Supply-chain disruptions are affecting volumes and limiting commercial truck production in the commercial transportation end market. Unfavorable foreign currency movements also pose a challenge to Howmet. In the third quarter, unfavorable forex movement hurt revenues for the Forged Wheels segment.
High raw material costs are raising the cost of goods sold, denting the bottom line. In third-quarter 2022, the company’s cost of goods sold grew 13.8% year over year to $1,056 million.
Amid these headwinds, Howmet has lowered its 2022 forecast. The company expects revenues of $5.60-$5.65 billion for 2022 compared with $5.64-$5.71 billion stated earlier. Adjusted earnings are anticipated to be $1.39-$1.41 per share compared with the $1.38-$1.42 mentioned earlier. Adjusted EBITDA is expected to be $1.265-$1.276 billion for the year compared with the aforementioned $1.276-$1.299 billion.
Rising capital expenditure might impact Howmet’s profitability in the near term. The company incurred a capex of $148 million in the first nine months of 2022, up 7.2% year over year.
Shares of Howmet have gained 5.1% in the past three months, underperforming the industry’s 6.7% growth.
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The negativity surrounding the stock is evident from the Zacks Consensus Estimate for 2022 and 2023 earnings being revised downward by 1.4% and 4.4% in the past 60 days, respectively.
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