Q2 2020 Howmet Aerospace Inc Earnings Call
[music].
Good morning, ladies and gentlemen.
Alright. Thanks.
2020 results conference call. My name is probably won't be operator for today.
Oh, My God Todays conference is being recorded for replay purposes.
I'd now like to turn the conference over to your host for todays call anything Vice President Investor Relations. Please proceed.
Thank you Beverlin good morning, and welcome to the how about aerospace second quarter 2020 results conference call.
I'm joined by John Plant Executive Chairman and co Chief Executive Officer, and Kenji, Cobi Executive Vice President and Chief Financial Officer.
After comments by John We will have a question and answer session.
I would like to remind you that today's discussion will contain forward looking statements relating to future events and expectations. You can find factors that could cause the company's actual results to differ materially from these projections listed in today's presentation in earnings press release ended up in our most recent SEC filings.
In addition, we've included some non-GAAP financial measures in our discussion reconciliations to the most directly comparable GAAP financial measures can be found in today's press release and in the appendix in today's presentation with that I'd like to turn the call over to John.
Good morning, everyone and thank you for joining the cool.
Today, we can I also have Togo who's on the cool I'm told goods like who see.
Oh God being administered the business since he's announcement just because the.
Second time at Investor Day in February.
Now, let's move to slide fool to cut the second quarter results.
Well, it's not be paint the picture, but the quota.
As you'll recall, we sold just a significant disruptions related to cause a bit 93 weeks of much.
The initially sex with quarantine related disruptions.
We didn't have it flat I'm certain customers that cease production for example, but we can get bus so from et cetera.
The full impact was felt in Q2 disgusting love shutdown schedule cancellations inhabit plant disruptions.
The results, reflecting this in disinfect shows sales reduced year over year by some 31%.
Operating income excluding special items by 42%.
Nevertheless, we were pleased with the absolute numbers.
14.4% operating income margin.
On a 19.7% EBITDA margin.
This reflects the switched cost containment actions undertaken starting at the end of the first week of April.
You may recall that we took I initial restructuring charge in the first quarter results.
These cost reductions continues you take effect each month in the second quarter.
Continue into Q3 and Q4.
Later in my remarks, I'll begin to focus more on our exit rate trajectory for 2020, that's been moving to 2021.
Well the to the second quarter EBITDA margin of 19.7 plus.
Hi, Mike also generated earnings per share.
Well sense.
Now, let's move to the balance sheet and the cash flow.
Adjusted free cash flow in Q2 was 76 million.
Excluding $11 million of separation costs.
I'd also point out that the $76 million to cash generation included the effect of three items.
Lastly, we reduced Oh.
Yeah, I'll securitization for the second time in Twentytwenty, and a customer supply financing program by some $30 million.
Second we may $12 million of cash restructuring payments.
Good you made additional voluntary cash contributions to our UK pension plan approximately $45 million to make a log reduction in the group's pension liability.
Well the absence of dogs, a free cash flow is after everything and if we had not pay down the accounts through school accounts for 60 securitization.
The UK pension on the restructuring the cash flows 76 million would have been higher by some 87 million Oh 63 million in the quarter.
Cash balance for Q2 improved.
After the separation of our clinical up on April 1st you have any cash balance of haven't with approximately $800 million.
The ended the second quarter, the cash balance was $1.3 billion.
The increase was due to approximately 65 million of cash generation after separation costs.
The net addition at 420 million as a result of refinancing bonds from 2021.
2020 to 2025.
Net debt to EBITDA was 2.73 times.
We have all the capacity of a billion he's on growing.
Let's move on to slide five.
We made <unk> response to cope with 19 in the market declines.
First with regard to our employees and customers employee safety is a top priority.
Actively managing employee health with.
Program to meet or exceed local stuff.
All of our site, so now up and running.
Well I reliable partner to our customers who are critical to the national defense to commercial aviation through the global economy.
Regarding profit in liquidity management has undertaken the following actions.
During some of the hourly workforce and reducing overtime.
Permanently reducing all types of labor.
So let me.
Elimination of temporary workers, flexing materials and services, reducing capital expenditures and reducing working capital.
Okay. So I mentioned, we refinanced a twentytwenty warm and 22 bombs into 2025, an added $420 million with cash in the balance sheet and the wiebold like he's on grow on.
Now, let me take tempted to Ken to give more details on that second quarter performance and then I'll begin to speak to the outlook for the second half of the yeah.
Great. Thank you John.
Before getting started I wanted to make a few comments on or basis presentation.
As a result of the separation on April 1st 2020, how about aerospace has reported the results of the separate entity Arconic Corporation.
Discontinued operations for one to 2020 in prior periods.
Per gap, it's important to note the corporate cost for the pre separation periods.
We're only allocated to our Kinda Corporation, if the cost were specifically attributable to the entity.
Therefore for pre separation period, how met retained 100% a whole shared corporate costs.
For two that for 2019.
How much statements will show approximately $190 million corporate costs, excluding special items since the shared costs were not allocated to our Kinda Corporation.
For clarity, we provided a schedule on slide 20 in the appendix, which is consistent with how much 2020 investor day in chose an estimate of historical operational corporate costs.
For 2019, the comparable annual operational corporate costs were estimated to be 100 million rather than 190 million.
Looking forward into 2020 operational corporate cost are expected to be approximately 75 million.
So let's move to slide six.
In the second quarter commercial aerospace was 54% of total revenue defense Aerospace was 18% commercial transportation was 12% and industrial combined with our other end markets with 16%.
Well the bid 19 in 737, Max production declines most severely impacted the commercial aerospace in commercial transportation markets, which were down 36% and 54% year over year, respectively.
We continue to expect defense aerospace to grow year over year due to the strong demand for the joint strike fighter on both new airplane builds in engine spares.
In the second quarter defense Aerospace was up 3% year over year and within the industrial in other markets I T. T was up 25% year over year.
Now, let's move to slide seven.
On this slide we provided historical information for the combined segments with an estimated operational view of corporate.
How many aerospace will present financial information for four segments engine products fastening systems engineered products and forged wheels.
Compared to the prior year to Q revenue declined approximately 570 million with a corresponding segment operating profit decline of 160 million.
The associated segment decremental margin for two Q2 thousand 20 was approximately 28% year over year.
Included in the results are price increases of 9 million, which are expected to continue in the second half. Additionally cost reductions were 55 million in the quarters. We benefited from actions taken in early April as well as last year.
Without the price increases the cost reductions.
[laughter] flex a variable costs in line with a significant and sudden revenue decline segment operating profit.
Decrement would have been more in the 37% range rather than the 28% range reported.
In the appendix, we provided historical information for each of the segments now, let's move to slide eight.
For each of the segments. We provided historical revenue segment operating profit and segment operating profit margin. We have also provided the revenue by market split for the current quarter as well as commentary on performance.
First we'll start with the largest segment engines.
For the second quarter year over year revenue was down 30% commercial aerospace was down 44% driven by co Big 19, and 737 match production declines.
Commercial aerospace was somewhat offset by a 7% year over year increase in defense aerospace in a 25% increase in high Ti as that market rebounds from a week level in 2019.
[noise] price increases continued in the segment.
Moreover, the team was able to quickly flex variable spending to mitigate the impact in the quarter of the significant decline in commercial aerospace revenue.
The decremental margin for two Q was 23% year over year.
Now, let's move to fasteners on slide nine.
For the faster segment second quarter year over year revenue was down 18%.
Commercial aerospace was down 15% driven by covert 19, and 737 Max production declines.
Fastener shift overdues in the second quarter, and we expect a steeper revenue decline in Threeq U.S. inventory levels are being adjusted it our customers and we expected seasonal revenue declines driven by European operations.
The fasteners commercial transportation business was down 43%.
Cost reductions across the segment.
Helps to mitigate the decrease in revenue, but higher absenteeism and they delay in European cost reductions result, in a 40% year over year decremental margin.
Now, let's move to slide 10 to review structures.
For the structure segment second quarter year over year revenue was down 31%.
Commercial aerospace was down 40% driven by coping 19 in the 787 production declines.
Decremental margins were 6% year over year.
Price increases cost reductions in exiting unprofitable businesses in 2019.
A lot of structures to increase operation operating margin by 70 basis points year over year, despite the 31% decline in revenue.
Lastly, let's move to slide 11 for wheels.
In the second quarter two wheel segment was the hardest hit with a 56% reduction in revenue year over year decremental margins were 47%.
For the month of April almost all of our OEM customers were shut down for the gradual recovery in May and June.
Despite the significant in rapid revenue declined the segment was profitable due to the rapid cost reductions as well as their ability to quickly flex variable spending.
Now, let's move to slide 12 for special items.
Special items totaled 171 million on a pre tax basis.
Which included three main items first.
$64 million charge for pension plan settlements, primarily due to do a voluntary action in the UK to reduce our gross pension liabilities by approximately $320 million.
Second 65 million dollar charge related to the early redemption of 2020 2021 in 2022 notes in the second quarter.
The third item was a $46 million charge related to severance programs that are tied to the 2020 cost reduction actions as we continue to navigate through a period of demand uncertainty.
So, let's now move to slide 13.
In the second quarter, we completed a good deal of work to improve our capital structure and liquidity. We completed the following actions we redeemed all of our 2020 bonds for 1 billion.
We redeemed 889 million of our 2021 bond to leaving 361 million, which will mature in April of 2021.
We redeemed 151 million of our 2022 bonds, leaving 476 million that will mature in February 2022.
Lastly, we completed a new bond issue for 1.2 billion, which is due in may of 2025.
Our next significant debt maturity is in October but 2024.
We also amended our revolving credit facility in the second quarter.
As a result of these actions we were able to increase.
Our cash position by approximately 420 million.
He also took pressure off the balance sheet by reducing the near term maturities and increased our available liquidity.
Before turning it back over to John to discuss the 2020 outlook, let me cover some assumptions on slide 14.
Corporate overhead is expected to improved to 75 million for the year based on further cost reductions.
Annual operational tax rate remains in the 28% to 30% range for the year, but we could have volatility in the quarters based on the current environment.
Lastly, pension and OPEB cash contributions remain at 210 million for the year and include the discretionary twoq payment of 45 million, which reduced the UK crows pension liability by 320 million.
So now let me turn it back over to John.
Thanks, Ken and let's move to slide 15.
We all providing you an outlook and that really is to give the best possible visibility to ER to the company.
Of course, we have to be monitoring that traffic around the world.
The best estimates of aircraft builds.
And this leads us to provide dispute to you for the balance of yeah, given that we're well into the second half.
However, we do recognize that remain significant uncertainties regarding mix them environment for example, spikes regarding Kobe 19.
Visibility if customer inventory corrections on aircraft build rate changes in the face of any part of the cobot spiking.
He was a salient points.
Full year revenue is expected to be $5.2 billion would be a plus or minus 100 million.
Commercial aerospace is expect to be down 35% consistent with previous view.
Commercial transportation is expected to be down, 45%, which is a modest improvement from our prior view.
Defense Aerospace and industrial are expected to be up defense aerospace up 10% industrial 5%.
The consolidated annual revenue for all of that market is expected to be down approximately 28, 25% to 28% year over year.
EBITDA was expected to be a 1.03 billion for the plus or minus EUR 35 million, but it is made up a very different quarters. For example in Q long than we had Oh I think a good level of revenues are never let us off so by disruption in Angola lot of part of March and then.
Of course, the transition courses of like Golub of the second them close quarters.
Mentioned, the fourth quarter, two new operating cost levels.
Not really the outlook remains our best estimate at this stage given the volume variability due to the complete alignment that crop build environment as previously mentioned.
Q3 revenue is expected to be the low point for the based upon the current view on these approximately 1.1 billion plus or minus 50 million as we expect significant commercial aerospace customer inventory corrections in the quota on the normal seasonal slowdown.
In Europe.
Cost reductions continue throughout the third and fourth quarters as we approach run rate.
Fourth quarter revenue is expected to recover some off on EBITDA margins are expected to be similar levels of the second quota.
This trajectory is important to note, especially since the operations methodology has been cost elimination and milk cost deferral.
Q2 to Q4 adjusted free cash flow is expected to be $400 million, plus or minus 50 million.
For the year, we expect free cash flow to be in the 300 million dollar range.
Leading a modest working capital benefits of less than 50 million.
Of course this these cash flows I just mentioned often.
The reduction and pay down approximately 50 million of a accounts receivable securitization program.
Like us that no supply financing program plus over $60 million of cash severance payments.
Moreover, the a the cassoulet includes a voluntary UK pension payment made in the second quarter of approximately 45 million do affect the $320 million.
Reduction in gross pension liabilities that can already mentioned.
Earnings per share is expected to be in the range of 60 cents to 72 cents for sure.
Now I'll provide some additional commentary for the year in the second huh.
We are increasing India cost reduction program $200 million.
Moreover, we expected additional $50 million and structural cost savings in 2020 from 29 the auctions.
These cost reductions are permanent I will help accelerate margin expansion when markets eventually recover.
Not continuing to flex variable cost to listen to this with the revenue decline.
We are reducing capex to though.
Annual capital expenditure I expected to be $175 million were approximately 3% and revenue.
Previous targets mentioned on the first quarter coal was $200 million.
We do expect pricing to remain favorable for the year.
Q3's expect the weaker than the second quarter due to significant customer inventory adjustment on the seasonality already mentioned.
However, in the fourth quarter, we do expect some modest recovery of volumes with adjusted EBITDA margin. So much in the second quarter.
Now, let's move to Cuba night.
Okay, and we will now begin question and answer session.
Oh, The reminder, that star one city played into Kitchenaid keurig.
<unk> pound if he would like to even is kinda Keith.
My question that you limit yourself to one question and one follow up.
Hi, My first question comes from the line, it's hard to coupling Amelia Spi sorry.
Hey, good morning, gentlemen.
Hey, John can you just give us a sense of.
The the reduction in the run rate or kind of build rates on the army OEM side, where we should be printing you you've kind of laid out here for the next.
I don't know 18, 24 months at that level loaded it you know down or 35% or 40% or 50% or any color you can help us on on how you thought about that build plan and how that fits in with your.
Your cost plan.
Yeah.
I mean, the most visibility that we have currently is Ah I think a bus where they'd give them a clear indications of build rates, which are well publicized through 70 for narrow body through I think April of next year too late afford a with wide body being down I don't think injections of like they treat 50 downhill.
So like the month.
Boeing or I can say, we've with as I think everybody knows we've had several or demand forecast over the last few months.
Currently the a build rate that was predicted to be very low, but seven so it's oh you mean.
So to sum up at the moment symptoms of where we all relative to inventory take us et cetera et cetera.
Also we recognize when we'd have to recognize that.
The amount of I'll say for us in our engine business you know that in place we by way of engine. Your mom them, then inventory levels in ER for something GE or such et cetera.
So <unk> essentially the way we think about it is we've taken that which are building in a bus published.
Well not a through a through especially kind in two or 320 21, and then just notes to ourselves to the.
Well you know we have no visibility of the like when we would expect recovery to occur, but the I guess the flip side that we have where we're taking I think inventory reductions as part of our Oh, so topline and.
Degradation at the moment.
Then a as bill stated when should begin to recover then we will see something that you build a in <unk> in advance about to depart the other pipelines pool the.
Demand recovery [noise].
Sure.
I know, we choosing not to call out when we use a demand no real those it's on the one thing we've done is to recognize the it's a difficult environment. The the mantra has been cost elimination not cost deferral such the so awesome. When we do begin to see a demand pull.
And are like given say the EBITDA margins that we achieved in the quarter, where we think will be for the year, but at the end at the then we're well positioned to take advantage of any demand recovery other money because.
I'm the only thing we consciously doing is that if we see a particularly low points a meeting they really cool about Q3 and not.
I don't plan to chase cost reduction for a quarter. So I also want to make sure that we were well positioned to be able to meet recovery of the money because I'm trying to define but Ah Ah. So the loading is and then a into should the future not so not to be a as we told me believe it.
To be been oversee will further adjusted cost base as necessary.
So I don't want that gives you a you know pretty good picture clutter of how we're thinking about it but we know and compared to what we don't know them.
Yeah, certainly does and with respect to the the inventory reduction in the channel that you're hinting that and.
Did you see coming in Q3 any color you can give us on on.
And that's.
In one area more than another whether that you know Andrew in her fast or whatnot or any color there would be helpful.
It's it's but it was.
It's one of the most difficult thing that we have to to try to get out in terms of visibility because clearly were not privy to exactly right for example, or how many engines are the most are being held <unk>, what the inventory levels exactly.
Well.
We did notes that we did have significant there is as we went to.
29 team, but as a thing because like I said on the early to cool I mean, those would be as can be buffer rates when when the the.
Builds are no longer a required.
So we just the believes that so we're seeing and we're in this period of inventory reduction become so.
The big bucket, how much will be cleared in Ah in the in the third quarter. There may still be some lingering goes into the fourth quarter and they need and beyond depending what looks like.
The same time, what we recognized in our own a cash flows.
So this year.
Our own working capital.
I will not be as good as it could be picky regarding inventory itself, because we will have even at the end of the fourth quarter. Some Trump inventory whereby you know given what we've previously on Mr demand to be we had schedule materials on some of those Ah would have to play can some of the things we have.
ER plants today, we will not be able to deliver a even though we are holding a custom listing count is the or they will be some significant that you're a few tens of millions of trumped inventory throughout the which will you take again sometime to burned off in the in the following ER.
Yeah.
So again to summarize its inventories the most difficult thing to get.
Visibility around that we can do look at least published schedules and we just see that though the court will be cool being brought to treat and for those.
The most reassessed a real their requirements.
Great. Thank you for the color John.
Okay.
Your next question kind of trying to line up.
Hey, that's out of Barclays.
Thanks, Good morning, everyone.
Hey, good morning.
So John I guess, one of the follow up on Carter's questions around the.
De stocking you know they did decline that you saw on commercial where in the quarter. A you know, 36% I know is different across different businesses, but.
Overall was much better than you know pretty much all your your peers your supplier peers on the toll bigger decline or calling for de stocking to go on now for several quarters. It sounds like you're calling for Q3 destock in them work back kind of in line with production rates I guess.
What what kind of visibility you have or what are you seeing that they could be different than what everyone else seems to be a indicating.
I I'm not playing will have everything cleared in the third quarter for sure because we just don't have that level of certainty with visibility that we'd like to hub.
Two of them, making some allowance for that that will continue throughout the year, but I think you didn't get more than 10.
Third quarter.
The other thing, which we all know king.
No I must say it again, because I think kind of price do a little bit I'm really first quarter cool when I think I said something today.
So commercial transportation recovering a little bit more quickly than the ER then commercial aerospace.
The and indeed, we are seeing that takes a.
Well second quarter was quite dramatic as moves the commercial loans will close something completely closed the during April and part of me.
So we are seeing improved demand.
In North America and in Europe.
Or we think that we'll see.
Stratton Island as we go into the into the fourth quarter. So.
The way we used so trying to map out a year was that we are you. We see two you still fairly low in Q3, but are believed to be getting better but the visibility you have for my customers.
We knew you see a buffer the it's like inventory reduction in commercial aerospace in Q3, making some allowance for that to continue into Q4.
And then the east like you know <unk> Bonwit's, we've tried to give you in terms of guidance to where we believe will go and the.
Oh I wish it was more so its I think the one thing that's I think if you do recognize it means we have done a best to give you.
Ah guidance or do we just do recognize that it isn't perfect for sure.
Okay, and then I'm moving number two.
Martin side of things so you've talked about you know the cost savings being permanent and further.
Pricing opportunities as we go forward here.
Where where would you kind of peg <unk> incremental margin once volume starts to come back or stabilize here, where where do you think incremental margins can you know can shake out and when do you think you can get no segment margins back to that kind of 20% runs about 20% rooms, and we were.
That would rather in Q1 before a pretty cobot. Thanks.
Yeah, I mean, that's a that's the sort of a a said new so that would you want to put my headed in terms of according to a margin guidance for the future.
The the well your purchase is Ah.
Just to say.
We've chosen not to defer things so to a because I've always concerned about cost if a little being something that I was on when you do see improvement cost slipped back into your business.
Or not I don't think that's really the way to go through it.
So I think it's a it's a pickups and elimination and I think the as periods of time. Indeed, I think many industries you saw this to some degree but even if you set the company is in a NAFTA late 2008 2009.
When you made the Sperry stews attempt to reduce structural cost than some of those most of those maybe all of those will go back into the business and so then you really are just taking the what comes back on to meet future revenue so margin rates do begin to improve but.
Time.
I mean, it's all questions is you know when do went linzess volume and inventory or build I talked about it will be when does occur.
That's good they would not have us no I'm just trying to make sure that we position how Matt as best as we can such the outcome when voting bills come back and or if we can that print those sort of EBITDA margins or that I talked about for Q2 and ER for Q4 when things are tough then.
Hopefully a year that leads you to a two the to the belief that we can do so when volumes improve and that's why it's all about it's like comparing have met coal the for the upswing, which will come.
Hey, good none of US know when it is but I think our job is to make sure that are well positioned it as best as we can as quickly as we com such that.
We can generate cash true up and that's what you're saying.
Yeah, David whatever what I would add to that too is you saw that we increased our structural cost out targets in year, two 150 million.
In year, and when you look at where we our year to date, we we had 26 million in the first quarter that was really related to the 2019 actions that came into this year.
In the second quarter, which 55 million so year to date that puts us at about 81 million. So good track record of free of 81 already in the back and we're targeting 150 for the full year on top of that if if you look it.
Back to the first quarter, we took a severance charge.
At the beginning of covert 19 about 20 million and then your see another severance charge in the second quarter of about 46 million. So there's good trajectory on the cost out to prices continuing and also we've exited some unprofitable businesses last year as well so that should help us.
All right that's helpful color. Thanks.
You mean.
Your next question current Kinda line of rapid benign credit Suisse.
Hi, good morning.
Rather.
First I'd like to thank you for the lever level of of detail here and.
And frankly for the willingness to guide.
There's not many have I wanted to on that I wanted to ask you about you've talked about visibility and I just wanted to get a sense, especially on the Max.
How well you can see what your customers have in terms of inventory are you building Max a engines now add up at a rate of seven per month or 14 for the engine seven for the Shipset.
And can you tell what kind of inventory the engine manufacturers have on hand.
Hmm.
Oh schedules or any lead on the engines coming through or very low level I'm not surprised in any given the engine inventory, which is Ah. It's we don't have.
Like numbers, because it's a it's proprietary to GE aviation and obviously they had a level of public float that was assuming a much different build level.
Compared to where we find ourselves at the moment, so where it's a very low point of a a photo bill for the leap engines.
And the ones that you are in particular.
For the end up with Boeing.
And so I think that will continue to very low level through a so 2020 and then assuming that are the recertification goes ahead, which we are no reason to believe that it won't that will be a good news and then going are you.
Plan to resume deliberate is and increase build rates as we go into 2021.
ER and that's the but that's the time that we're looking forward to because we have been the that the a that essentially it but at a Max build for a long period of time now and ER. So thank you. So maybe don't yourself for the whole industry is looking for.
That time.
Because we do think that narrow bodies Buddy.
It's where the demand will be in the future.
Is there any way you can give us some sense of your content.
On that program are you know on a per aircraft basis is there anything even though I mean, what we we've never given or melt in recent times given shipset values.
By Air Craft. The you know I don't really want to do that on today's call.
But ER I mean clearly.
When you look at the impact that we had enough those corridor, where we'd be cool most specifically and then you can see on the seat the essentially not present at all in a a second quarter you can see that the combined defect.
I've got my or on the koby do not related impacts of.
<unk> across the assembly plants being down because of employee quarantine and also just they hold the mom loves them online I mean could very very difficult picture for the commercial aerospace I'll speak about business.
But I know I don't really want to call out a shipset value.
Mhm.
Okay fair enough in just a clarification I don't think you said this before but in terms of the of the commercial.
Aerospace revenue declined in the quarter I think 36% can you.
Specify how much that was down for OE versus aftermarket and I'm not just thinking about airfoils, an aftermarket, but all of your commercial Aero aftermarket and then what's contemplated in the second half guide for those.
Two buckets. Thank you.
So who knows.
Love the quota we gave it a bit more granularity regarding a spring sales from so the most intense purpose. It sits around 800 850 million level whole company.
So that she was the run some 800 million in 2019, it was approximately EUR 400.
For a different or Oh wonderful industrial and for that for 404 commercial aerospace.
I'm thinking that this year.
But the 404 defense aerospace and industrial business will be a little bit higher.
So given or the build their rebuild or the specify which is what you need to go with those so think about a 10% plus increase in the in that said, it's called it out full 50.
It could be a bit more <unk>, you don't know yet.
And then a full the bumps or see a very severe contraction in the commercial aerospace will not 400 million probably down to the hundred 50 million plus or minus a sum up 400 million. So that's on a year that whole obviously massive reductions in Ah.
And the like in Q2 keeps running a who for the aftermarket so it all balances out probably in that region, probably maybe just shy of the a the 600 million dollar range.
<unk> token spares for a full homesites in Twentytwenty, but was very different quarters as you can imagine.
No it looked like a required in school and you say repair and overhaul at the moment.
I see thank you very much.
Thank you.
Your next question comes from the line I've gotten O'connor Uptown.
Your line is that was.
Hi can you hear me.
Ken Tice I got them.
Terrific. Good morning, I was.
Forgive the question, but [laughter] you want to solution [laughter] [laughter].
So here we go out you know earlier I think you'd said maybe last quarter that pricing would are you implied pricing would be better than 20 million this year.
I wanted an update on that awarded an update on your 21 view on pricing and.
I'm trying to answer the question you know do you think earnings per share will be up next year over this year. So maybe you can also address the carry forward a structural cost out next year.
Pricing that you know obviously.
Understanding revenue was.
Price, it's a function of volume shipments so I get that's maybe just directionally.
For next year, but if you can opine or whether you think earnings per share will be up.
Next year, given the tough Q1 compare and all the other moving parts.
And then I've a follow up thanks, yeah, well I'm I'm not into giving 2021 or Referenceable God.
This point in time, I feel as though that's way too early.
To be talking about ER.
Or what we tried really hard to try to keep your visibility that we have done today.
Someone earlier you recognize the ER.
We are the.
Leverage to give that because during the second home, we don't almost on one of those two.
So I I don't think I'm going to talk to 2021 of them I mean, I have a view, but she can we try to think about that break TV for ourselves in terms of what is a run rates are such revenues when I run rates in terms of margin how does it panels and so.
It will we certainly have done no uppermost in our mind about the trajectory into a into 21 and also.
22.
So we were trying to think a lot about that but I don't we want to keep God. This point I think the most important thing was to try to give you Steve <unk> exit rate trajectory, which you go.
You try to give you some you know how will.
Seeing some inventory issues that we work through and hope for those are largely done by next year, but there's no guarantee.
I've tried to give you a view about maybe there's some recovery in commercial transportation to see US it's moved towards the with another call but yeah.
I'm not in terms of pricing clearly the absolute dollar because it'll be a function of revenue. We know that revenue is not going I mean, what we had in 2009 thing.
ER and we also recognize that the environment I'm not customers rural real suffering at the moment rural in a world of her.
But we also believed that the trajectory in terms of so the the.
Price we've talked about is a is it largely black there will be it can't be exactly the same given the current pressures of the industry.
On the we've tried it was cool it again in Q2 and give some 60 of 40 my words for the balance of yeah.
So at the moment as best as you can be I think yeah, largely on track cool doing what we've said we do.
Positioning the company as best we county in terms of cost structure.
Or trying to give you read the flu ebbs and flows regarding <unk> it looks a little bit you called out the.
In perfect nature of the visibility that we have.
Same time, it really try to give ourselves, but absolutely best positioning that we can pitch. The other been revenues you begin to pull let's they always do and they will and you know gone for the against we shall see in the decline is Ah ha moment is is really a well position.
And too I emailed to manufacture those parts and also get the light levels of profitability I'm, given what we've done the way that protocols are planning.
Cool 2020.
Yes, I appreciate that.
Yes, there are a couple of notable things the structural cost out next year versus the rest of the how does 150 this year compared to what you anticipate for next and maybe just directionally as pricing will be better and.
Pricing realization will be better and 21 versus 20, because that was the plan at the Investor day I wondered if at least Directionally I still Midland if I was going to walk away from the direction of said and I didn't so okay.
On the second point is clearly there's gonna be apociiirx that carry over the age 21 of <unk> cost reductions that we already knew carrying through the bottom and given the fact that so essentially they commenced in ER in April.
In the play so.
So that we see so I think the the thing that you should think about the words that we chose them, but we would eliminate cost not differ with.
Because I think there's a there's companies which differ I mean can see across the whole industrial space. There is some of them. If you do so like you know I don't want cost the flood by Kid and programs to read stated so that's the way we've approached it.
And my follow up is inventory plans through the first half of next year or beyond you mentioned those gonna be some trapped inventory at year end.
Do you think you know inventory will be a source of cash.
Or maybe for the next year or can you give us a timeframe as to when.
Yeah, you know when that might abate because it's obviously is in the second half yeah, how long it seems only depends upon the angle of good demand line, let's assume that if if if all things were flat.
Then the fact, we have dropped inventory at the end of this year. It would mean that would be a source of cash in 2021.
Obviously, if 2021, but it just shows some pull must demand increase.
Or all things being equal normally you have some working capital build again, so but I don't see it would be muted by whatever inventory, we carry out of 2020 to 2021.
Well I've said, so far without giving a specific number some tens of millions but the.
Humming in access at the end of the here.
Appreciate it thank you.
Thank you.
Your next question comes from the line at Hep C. No. Okay P. Morgan.
Okay, Thanks, very much and good morning.
So I was wondering.
I appreciate the fact that are in a recovery in commercial aerospace, where I'll kind of groping around and dark, but but I wanted to ask about commercial transportation since honestly I don't really know anything about that that end market. When we think about when it's realistic to think about getting back to the 2019 level in that and Mark.
It is is there you know a little bit more visibility there or.
Forecasting ability.
Yeah, we got a view at the moment so.
Claiming given everything that's going on so it's a well informed view.
But I am thinking that in 2022.
We got it'd be pretty close in terms of volume.
It was produced.
Against 29 team no I'm a infection is what do I mean, but pretty close but.
I'm, not saying is gonna be above, but they're getting pledged to so I'm feeling.
A little bit more confident the.
And then commensurate with the fact that I think as we've told.
Pulled into markets that each year, we do take a little bit of show.
From the steel wheel.
We have introduced as you know who's a news 39 pad will therefore will leave the market leading full time and that's also witnessed by our market shares across the world.
Wheels.
I'm thinking that actually a as we go into a 2023, we're gonna see above a 29.
Volumes.
No [laughter].
What do you see I said this is what we think didn't mean to say that's where it can be but this is how we're thinking about the business well need more importantly.
Okay.
What we're doing at the moment, we repositioning capacity in that but in that business such that when gold you pull those occur is that we're able to to manufacture it didn't even more efficiently than we previously done, but that's not going to require that Paul you pulled to be that takes it to be a seed in terms.
There are a result.
So I think this is maybe things that we could not have done if we'd have had the demand lumps of 19, just flowing through 20, and 21 youre going to put your opportunity. We've tried to be protocols have been production to enable lots of future I'll say, yeah improve cost levels to occur.
But right. So 22 for the volume and 23 FA above 29 teething problems.
Great.
Thanks, Thanks, very much so someone that's a long way out when you when it's a long way assets when you battling a in individual we'd some quarter to the violent.
Yeah, no room for like a fully appreciate that and then I guess, maybe speaking of 2023. When you know at the Investor Day earlier. This year you know you talked about a plan to.
Sort of remain for three years.
Obviously, nobody knew what was coming and so just to kind of confirm or or you know ask you a if they you know any any change in your thinking as a result of everything that's happened over the past five months or so I.
I think you just asking there I my Oldham worn out now but.
Sure for vials that we're going through the answer is no.
I mean, oh, there's giving huge or [laughter] isn't getting into it across the piece.
The plan is exactly Oh they did.
Well I made a commitment.
I always see a commitment through who no diminution in that regard. It's all its just that we were looking through some some issues of business, which we haven't been expected, but you never reached its just business. It's just the normal thing you.
Go through and except that the you know lifestyle took a smooth.
Okay, great well, thanks, very much I take thinking.
Your next question comes Kinda line of cash element of the benchmark company.
Hey, good morning, John can you see.
Josh just curious on the financial condition, you know if your smaller suppliers you know its was maybe smother adjacencies to yourself is there any conversation of increase consolidation you know just given the very challenged financial condition.
For everybody, but particularly the smaller suppliers are your customers coming to you, saying you know that suggest seen any tie ups at this point.
No I ER I might be in my take on fact Ah that's question or buys one of them management teams and or at least once a quarter the ER business will be.
And my take on it is that right now.
No no companies, which are the we have enough clarity and pumped tends to be able to ER to take aggressive steps given that none of us know the leaving the shape of future.
Aircraft in mind, we made good to know what and lazy <unk> low airline loading factor though.
Because there's only maybe.
Time goes by.
Things change I mean today, if any proposals will make any companies my views that no board, possibly have a evaluate or anything at this point because you on what basis would anybody we should be made in it because the visibility so you say low.
The other give it.
To get it when you to 2020 long sometime.
Oh, good between two but no I think that there'll be a increased clarity.
Nothing, but it's going to be a during that time period, when or if there is M&A activity across the let's take the wider industrial space and then a aerospace subsector of that is the I'd expect the they sort of moves to occur during that period of time, when there will be more visibility says that.
Or any.
Any time that companies want to make us acquisitive step or when any acquisitive steps all received it just depends upon or then your boards eating evaluation. So that's my guess, but no we've not been approached by any of our customers.
Two or do you consider acquiring any body or anything like that.
And then just related thing I mean, given the lack of clarity I mean are there any areas that you're concerned about suppliers and their financial condition or ability to support you.
Oh, we scanned supply they or out of all of US applies lives to speed Wong.
Sure ER, which you know your thoughts and then we need to keep a good I'll just to make sure though so now I'm in a position to supply and by and large group. We've tried to put that supply basins that condition, where no we're not totally dependent upon any single supply.
Oh popsicle stuff not a good place to be.
But in the same yelps I'm not going to call out with the that's pretty lumpy come on which may cause this.
Problem, but so far so good or what I'd him I'm not seeing any problems that they're going to cause also problem.
[laughter] pick it was done.
Okay thinking.
Yeah.
Ladies and gentlemen, we have reached a lot at time for questions. Thank you for participating in today's conference you may now disconnect.
Okay.
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