Leeham News and Analysis
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Leeham News and Analysis
- Bjorn’s Corner: Air Transport’s route to 2050. Part 20. May 2, 2025
- Supplier Howmet exceeds expectations despite tariffs May 1, 2025
- Airbus 1Q2025 results: So far, so good, but US tariffs make future results unpredictable May 1, 2025
- Does an Airbus A220-500 need a new wing and engines? May 1, 2025
- Teamsters, Boeing have a new contract April 29, 2025
Supplier Howmet exceeds expectations despite tariffs
By Karl Sinclair
Howmet 1Q2025 earnings report.
May 1, 2025, © Leeham News: Howmet Aerospace (HWM) reported record revenues, record profits and a strong cash position in 1Q2025.
Revenues were up 6%, Year-Over-Year (YOY) to $1.94bn, beating the baseline projection of $1.935bn, driven by Commercial Aerospace, which was up 9%.
Adjusted EBITDA was $560m, up 28% YOY, crushing baseline estimates of $520m.
Cash from operations generated $253m, while $125m was spent on stock buybacks, during the quarter. The company also spent a further $100m on buybacks in April. Total capital deployment was $167m on buybacks and dividends, for the period.
Free-cash-flow was $134m, up from $95m, YOY.
Howmet reported net income of $344m in 1Q2025, versus $243m in 1Q2024.
“While the tariff situation remains fluid, we expect to pass on tariff-related costs to our customers,” remarked Executive Chairman and CEO John Plant.
Tariff workarounds
Howmet was the first aerospace company to propose using ‘force majeure’ to get out from under adverse contracts due to the tariff war begun by President Donald Trump.
According to K&L Gates, a large law firm with a footprint on five continents, “Contractual force majeure clauses may serve as a basis for relief when deals turn bad due to significant changes in trade regulations, including tariffs. Whether a force majeure clause operates to excuse a party’s performance will primarily depend upon the language of the contract.”
A contract must have clauses included in it, which allow for such a provision.
“There is no implied force majeure, meaning that a party can only invoke force majeure if the contract includes a force majeure provision,” continues K&L Gates. “For instance, parties seeking to invoke force majeure clauses to excuse performance based on the COVID-19 pandemic were generally unsuccessful absent specific contractual language that contemplated disease, pandemics, or governmental action as a basis for excused performance.”
One can be certain that any contract, moving forward will have such provisions – but the question remains: does Howmet have access to such relief, or is it just posturing in order to get suppliers and customers to bear any increases?
Plant was refreshingly candid in his comments regarding tariffs, saying, “…should I get my worry beads out? You know, yes, I think it’s appropriate.”
He even chided analysts during the question period, when he noted that no one had asked him about tariffs after 20 minutes of questioning. It seems that there was little appetite to address the elephant in the room.
Finally, a question about force majeure
Ron Epstein of Bank of America finally asked about force majeure and Plant replied, “Well, I thought for a second, even despite my prompting that no one would ask the question. So, I was going to have to find a way of talking to it so that it could be out there.”
He continued, “On the wider picture in tariffs, it’s been very fast-moving and changing, both in terms of the percentages and also exemptions, either by product or by country. So, it’s been tough to keep up with all of the changes there.”
This echoes the statements of other CEOs in the aerospace segment, regarding volatility, which business detests.
Howmet is using any and all means possible to minimize the impact, including the USMCA (free-trade agreement), duty drawback using bonded warehouses, free trade zones, exemptions and inward-processing relief.
“Clearly we want to protect Howmet. When we examined contracts, while we have very solid material escalators in place, in certain cases, tariff is not called out in the contract language. [W]e wanted to protect for that, so there was no ambiguity”, Plant said.
Howmet issued letters to all customers, regarding tariffs, to maintain consistent messaging.
Material impacts for FY2025 are estimated to be an $80m gross impact, netting out at $15m, according to Plant.
“Regarding commercial aerospace, the passenger traffic has continued to grow, albeit more slowly”, he said. “That’s mainly due to Europe and Asia-Pacific, where growth has continued. There’s been uncertainty in North America in particular, driven by a combination of political and economic statements. Travel to the US is also reduced. Air cargo growth has moderated.”
Quarterly Results
Despite tariff worries, there was little financial impact to the financial results for the period.
Indeed, the conclusion can be drawn that Howmet benefited from customers stockpiling inventory, resulting in a solid quarter for the company.
Segment analysis shows that the Engine Products division reported the largest revenue gains of the quarter, while Fastening Systems and Engineered Structures showed the greatest jumps in margin.
Fastening Systems earned a whopping ~31% margin on sales, with little to no material benefit to the company from the SPS Technologies fire, according to Plant.
Forged wheels was the big disappointment, with a decline in both sales and margin.
Commercial Aerospace leads the way
Howmet revenues are heavily anchored in the Commercial Aerospace segment, with 52% of the 1Q2025 sales pie.
Defense Aerospace was up 19%, due to spares growth on the F-35 program.
Commercial Transportation was the trouble spot, with a (14%) decrease, YoY – despite being up sequentially from 4Q2024 by 2%.
Revenues were up $118m YoY, with Commercial Aerospace leading the way.
The company hired an additional 500 employees (net) during the quarter, with most of them assigned to the engine segment, as engines spares growth increased.
Howmet estimates that revenues from the installed CFM-56 fleet will be strong through the 2026-2027 fiscal years.
According to company projections, Boeing is estimated to increase production from 25/mo to 28/mo (yearly average) on the 737 MAX program, while the Airbus A320Neo family will generate numbers in the mid-50s.
There will also be a marginal pullback on widebody deliveries, during the year.
Howmet performed well during 1Q2025 and seems to be taking a proactive approach, regarding tariffs.
While there has been little detrimental impact during the period, it remains to be seen how well the heavily-integrated aerospace industry deals with the issue, as the effects begin to take hold in the second quarter.
We don’t know what tariffs will be and its the next quarter that would show a trend if they are implemented.
Or the Orange one declares he is a winner and everyone is rich except enjoy the pain he is injecting.
You can bet 50 members of the house are looking over their shoulder and thinking, if he would only quit.