Q1 2024 Howmet Aerospace Inc Earnings Call

Operator: Good morning, and welcome to the Howmet Aerospace first quarter 2024 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your telephone keypad. To withdraw your question, please press star, then 2. Please note, this event is being recorded. I would now like to turn the conference over to Paul Luther, Vice President of Investor Relations. Please go ahead.

Good morning, and welcome to the Howmet Aerospace first quarter 'twenty 'twenty four earnings conference call.

Speaker Change: All participants will be in listen only mode.

Operator: Should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

Operator: After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad.

Operator: To withdraw your question. Please press Star then two.

Operator: Please note this event is being recorded.

Operator: I would now like to turn the conference over to Paul Luther Vice President of Investor Relations. Please go ahead.

Paul Thomas Luther: Thank you, Gary. Good morning, and welcome to the Howmet Aerospace First Quarter 2024 Results Conference Call. I'm joined by John Plant, Executive Chairman and Chief Executive Officer, and Ken Giacobbe, Executive Vice President and Chief Financial Officer. After comments from John and Ken, 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 and earnings press release and in our most recent SEC filing.

Paul Thomas Luther: Thank you Gary Good morning, and welcome to the Howmet Aerospace first quarter 2024 results conference call.

Paul Thomas Luther: I'm joined by John Plant Executive Chairman, and Chief Executive Officer, and Ken Jacobi, Executive Vice President and Chief Financial Officer.

Paul Thomas Luther: After comments by John and Ken We will have a question and answer session.

Paul Thomas Luther: I would like to remind you that today's discussion will contain forward looking statements relating to future events and expectations.

Paul Thomas Luther: You can find factors that could cause the company's actual results to differ materially from these projections listed in today's presentation and earnings press release and in our most recent SEC filings in today's presentation references to EBITDA operating income and EPS mean, adjusted EBITDA, excluding special items adjusted operating income excluding <unk>.

Paul Thomas Luther: In today's presentation, references to EBITDA, operating income, and EPS mean adjusted EBITDA excluding special items, adjusted operating income excluding special items, and adjusted EPS excluding special items. These measures are among the non-GAAP financial measures that we've included in our discussion. Reconciliations to the most directly comparable gap financial measures can be found in today's press release and in the appendix to today's presentation. With that, I'd like to turn the call over to John.

Paul Thomas Luther: Special items and adjusted EPS, excluding special items. These measures are among the non-GAAP financial measures that we have included in our discussion.

Paul Thomas Luther: 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.

Paul Thomas Luther: Yeah.

John C. Plant: Thanks, P.T., and good morning, everybody. Q1 2024 was an outstanding quarter for Howmet. Revenue, profit, margin, and earnings per share were all records and all improved versus guidance last year and sequentially. More specifically, Q1 performance and year-over-year improvements were as follows. Revenue was $1.824 billion, up 14%. EBITDA was $437 million, up 21%, with a healthy incremental of 35%. Yibida's margin was up 150 basis points to 24%, and operating income was up 27% with a margin rate of above 20.

John: Thanks, P J and good morning, everybody.

Speaker Change: Q1, 2024 was an outstanding quarter, if I'm at.

John C. Plant: Revenue profit margin.

John C. Plant: The share of a record.

John C. Plant: Improved so she's got last year and sequentially.

John C. Plant: More specifically Q1 performance and year over year improvement, whereas follows.

John C. Plant: Revenue was 1.824 billion up 14%.

John C. Plant: Dog was 437 billion up 21% with a healthy incremental a 35%.

John C. Plant: EBITDA margin was up 150 basis points to 24%.

John C. Plant: Operating income was 27 was up 27% with a margin rate of about 20.

John C. Plant: Earnings per share were $0.57, an increase of 36% year over year and 8% sequentially. We'll recall that in Q4, earnings per share benefited from an unusually low tax rate of 20.7% and also currency favorability, and hence the sequential improvement was indeed excellent. The pre-cash flow was $95 million and marked the first quarter with an inflow to be followed by further inflows in Q2, Q3, and Q4. We were particularly pleased with the positive cash flow since, for many years, we've seen Q1 outflows which had to be overcome in later quarters.

John C. Plant: Earnings per share of about 57 cents, an increase of 36% year over year and 8% sequentially.

John C. Plant: You will recall that in Q4 the earnings per share benefited by an unusually low tax rate of 27%.

John C. Plant: And also currency favorability and hence the sequential improvement was indeed excellent.

John C. Plant: Free cash flow was 95 million.

John C. Plant: And marks the first quarter with an inflow to be followed by further inflows in Q2 Q3 and Q4.

John C. Plant: We were particularly pleased with the positive cash flow for many years, we've seen Q1 outflows, which had to be overcome in later quarters.

John C. Plant: A total of $150 million of cash was used to purchase shares, just over 2.2 million shares at an average price of approximately $67. Dividends of five cents per share were paid, and you'll recall that these had been increased by 25% in Q4 of 2023. Finally, net debt to EBITDA was a record low of two times. I'll now turn the call over to Ken to cover the financials in more detail before returning to talk about the overall outlook for 2024.

John C. Plant: A total of 150 million of cash was used to reach towards your shares just added the two 2 million shares at an average price of approximately $67.

Ken: Dividends of five cents per share were paid and you'll recall that these had been increased by 25% in Q4 of 2023.

Ken: Finally, net debt to EBITDA was a record low of two times on.

John C. Plant: I'll now turn the call over to Ken to cover the financials in more detail before returning to talk to the overall outlook for 2024.

Kenneth J. Giacobbe: Thank you, John. And good morning, everyone.

Ken: Thank you John and good morning, everyone, let's move to slide five for an overview of the markets.

Kenneth J. Giacobbe: Let's move to slide five for an overview of the market. All markets continued to be healthy in the first quarter. On a year-over-year basis, performance was as follows. Total revenue was up 14%, driven by very strong growth in the commercial aerospace market, which was up 23%. Commercial aerospace has now grown for 12 consecutive quarters and represents approximately 50% of total revenue. Growth continues to be robust, supported by demand for new, more fuel-efficient aircraft with reduced carbon emissions and increased spares demand for engines. Moving to our other markets first.

Kenneth J. Giacobbe: All markets continued to be healthy in the first quarter.

Kenneth J. Giacobbe: On a year over year basis performance was as follows total revenue was up 14% driven by very strong growth in the commercial aerospace market, which was up 23%.

Kenneth J. Giacobbe: Commercial aerospace has now grown for 12 consecutive quarters and represents approximately 50% of total revenue.

Kenneth J. Giacobbe: Growth continues to be robust supported by demand for new more fuel efficient aircraft with reduced carbon emissions and increased spares demand for engines.

Kenneth J. Giacobbe: Moving to our other markets first.

Kenneth J. Giacobbe: Defense aerospace was also strong, up 12% driven by fighter programs and engine spares demand. Next is commercial transportation, which has been resilient in a challenging market. Revenue was up slightly as we continued to offset weakness in the market by taking share from steel wheels with Howmet's lighter and more fuel-efficient aluminum wheels. Finally, the industrial and other markets were up 7%, driven by oil and gas up 15%. General Industrial was up 10% in IGT, which was flat. In summary, another strong quarter across all of our end markets. Now, let's move to slide six.

Kenneth J. Giacobbe: Defense Aerospace was also strong up 12% driven by fighter programs in engine spares demand.

Kenneth J. Giacobbe: Next is commercial transportation.

Kenneth J. Giacobbe: Which has been resilient in a challenging market.

Kenneth J. Giacobbe: Revenue was up slightly as we continued to offset weakness in the market by taking share from steel wheels, with how much lighter and more fuel efficient aluminum wheels.

Kenneth J. Giacobbe: Finally, the industrial and other markets were up 7% driven by oil and gas up 15% general.

Kenneth J. Giacobbe: Industrial up 10% in IGT, which was flat.

Kenneth J. Giacobbe: In summary, another strong quarter across all of our end markets.

Kenneth J. Giacobbe: Now, let's move to slide six.

Kenneth J. Giacobbe: Yeah.

Kenneth J. Giacobbe: First, moving to the P&L. Q1 revenue EBITDA, EBITDA margin, and earnings per share were all records and exceeded the high end of guidance. Revenue is up 14%, and EBITDA outpaced revenue growth by being up 21% while absorbing the addition of approximately 430 net new employees in the quarter. Incremental flow through of revenue to EBITDA was a healthy 35%. Even the margin was a record at 24%, and earnings per share were also a record at 57 cents, which was an increase of 36% year over year.

Kenneth J. Giacobbe: First moving to the P&L.

Kenneth J. Giacobbe: Q1 revenue EBITDA EBITDA margin and earnings per share for all records and exceeded the high end of guidance.

Kenneth J. Giacobbe: Revenue was up 14% and EBITDA outpaced revenue growth by being up 21%, while absorbing. The addition of approximately 430 net new employees in the quarter.

Kenneth J. Giacobbe: Incremental flow through of revenue to EBITDA was a healthy 35%.

Kenneth J. Giacobbe: EBITDA margin was a record at 24% and earnings per share was also a record at 57, which.

Kenneth J. Giacobbe: Which was an increase of 36% year over year.

Kenneth J. Giacobbe: Now, let's move to the balance sheet and cover, the balance sheet, and cash flow. The balance sheet and liquidity have never been stronger. Cash at the end of the quarter was $534 million, and free cash flow was a record for Q1, at $95 million. Net debt to EBITDA improved to a record low of two times. All long-term debt is unsecured and at fixed rates, which provides stability of interest rate expense into the future.

Speaker Change: Now let's move.

Kenneth J. Giacobbe: So the balance sheet and cover the balance sheet and cash flow.

Kenneth J. Giacobbe: The balance sheet and liquidity have never been stronger.

Kenneth J. Giacobbe: Cash at the end of the quarter was 534 million and free cash flow was a record for Q1 at $95 million.

Kenneth J. Giacobbe: Net debt to EBITDA improved to a record low of two times.

Kenneth J. Giacobbe: All long term debt is unsecured and at fixed rates, which provides stability of interest rate expense into the future.

Kenneth J. Giacobbe: Yeah.

Kenneth J. Giacobbe: Howmet's improved financial leverage and strong cash generation were reflected in Moody's Q1 Ratings Upgrade to Investment Grades. With this upgrade, Howmet is now rated as investment grade with all three rating agencies. Additionally, with the recent upgrades, we have established a $1 billion commercial paper program, which further strengthens our liquidity. Finally, we continue to have access to our $1 billion undrawn revolver. Total liquidity now stands at approximately $2.5 billion. Finally, let's move to capital deployment.

Kenneth J. Giacobbe: How much improved financial leverage and strong cash generation were reflected in Moody's Q1 ratings upgrade to investment grade.

Kenneth J. Giacobbe: With this upgrade we are now rated as investment grade with all three rating agencies.

Kenneth J. Giacobbe: Additionally, with the recent upgrades, we have established a $1 billion commercial paper program, which further strengthens our liquidity.

Kenneth J. Giacobbe: Finally, we continue to have access to our $1 billion Undrawn revolver.

Kenneth J. Giacobbe: Total liquidity now stands at approximately $2 5 billion.

Kenneth J. Giacobbe: Finally, let's move to capital deployment.

Kenneth J. Giacobbe: We deployed approximately $170 million of cash in the quarter to shareholders, of which $150 million was used to repurchase common stock. This was the 12th consecutive quarter of common stock repurchase. The average diluted share count improved to a record low Q1 exit rate of 411 million shares.

Kenneth J. Giacobbe: We deployed approximately 700 hundred excuse me $170 million of cash in the quarter.

Kenneth J. Giacobbe: To shareholders of which 150 was used to repurchase common stock.

Kenneth J. Giacobbe: This was the 12th consecutive quarter of common stock repurchases.

Kenneth J. Giacobbe: The average diluted share count improved to a record low Q1 exit rate of 411 million shares.

Kenneth J. Giacobbe: Finally, we continue to be confident in our pre-cash flow. In the first quarter, we deployed approximately $20 million for the quarterly Common Stock Dividend of $0.05 per share. Now let's move to slide 7 to cover the segment results for the first quarter. Engine products continue to show strong performance. Revenue increased 11% in the quarter to $885 million. Commercial aerospace was up 14%, and defense aerospace was up 13%. Both markets realized higher build rates and spares growth. Oil and gas was up 15%, and IGT was flat. Demand continues to be strong across all of our engines, Mark.

Kenneth J. Giacobbe: Finally, we continue to be confident in our free cash flow.

Kenneth J. Giacobbe: In the first quarter, we deployed approximately $20 million for the quarterly common stock dividend of <unk> <unk> per share.

Kenneth J. Giacobbe: Now, let's move to slide seven to cover the segment results for the first quarter.

Kenneth J. Giacobbe: Okay.

Kenneth J. Giacobbe: Engine products continued its strong performance.

Kenneth J. Giacobbe: Revenue increased 11% in the quarter to $885 million.

Kenneth J. Giacobbe: Commercial aerospace was up 14% and defense aerospace was up 13%.

Kenneth J. Giacobbe: Both markets realized higher build rates and spares growth oil.

Kenneth J. Giacobbe: Oil and gas was up 15% in IGT was flat.

Kenneth J. Giacobbe: Demand continues to be strong across all of our engines markets.

Kenneth J. Giacobbe: EBITDA increased 17% year-over-year to a record $249 million. EBITDA margin increased 140 basis points year over year to a record 28.1% while absorbing approximately 435 net new employees in the quarter. Once again, the engines team delivered another strong quarter. Now let's move to slide 8.

Kenneth J. Giacobbe: EBITDA increased 17% year over year to a record $249 million.

Kenneth J. Giacobbe: EBIT margin increased 140 basis points year over year to a record 28, 1%, while absorbing approximately 435 net new employees in the quarter.

Kenneth J. Giacobbe: Once again the engines team delivered another strong quarter.

Kenneth J. Giacobbe: Now, let's move to slide eight.

Kenneth J. Giacobbe: Fastening systems also had a strong quarter. Revenue increased 25% year-over-year to $389 million. Commercial aerospace was up 44%, including the impact of the wide-body recovery. Commercial transportation was up 5%.

Kenneth J. Giacobbe: Fastening systems also had a strong quarter revenue increased 25% year over year to $389 million.

Kenneth J. Giacobbe: Commercial aerospace was up 44%, including the impact of the wide body recovery.

Kenneth J. Giacobbe: Commercial transportation was up 5% General industrial was up 14% and defense Aerospace was down 11%.

Kenneth J. Giacobbe: General industrial was up 14%, and defense aerospace was down 11%. Year-over-year EBITDA outpaced revenue growth with an increase of 59% to $92 million. EBITDA margin increased 510 basis points year over year to 23.7%, which reflects the improved commercial and operational performance, complimented by the Widebody Recovery. Now, let's move to slide nine.

Kenneth J. Giacobbe: Year over year, EBITDA outpaced revenue growth with an increase of 59% to $92 million.

Kenneth J. Giacobbe: EBITDA margin increased 510 basis points year over year to 23, 7%, which reflects the improved commercial and operational performance.

Kenneth J. Giacobbe: Complemented by the wide body recovery.

Kenneth J. Giacobbe: Now, let's move to slide nine.

John C. Plant: Engineered structures performance continued to improve, and revenue increased 27% year-over-year to $262 million. Commercial aerospace was up 26% year-over-year, driven by build rates and the wide body recovery. Defense aerospace was up 27% year-over-year, primarily driven by the F-35 program. EBITDA was up 7 million year-over-year, and EBITDA margin decreased slightly to 14.1%. However, sequentially, revenue EBITDA and EBITDA margin increased for the third consecutive quarter. The team is making progress, and we expect continued improvements throughout 2020.

Kenneth J. Giacobbe: Engineered structures performance continued to improve Rev.

John C. Plant: Revenue increased 27% year over year to $262 million.

John C. Plant: Commercial aerospace was up 26% driven by build rates in the wide body recover.

John C. Plant: Defense Aerospace was up 27% year over year, primarily driven by the F 35 program.

John C. Plant: EBIT was up $7 million year over year, and EBIT margin decreased slightly to 14, 1%.

John C. Plant: Sequentially revenue EBITDA and EBITDA margin increased for the third consecutive quarter.

John C. Plant: The team is making progress and we expect continued improvements throughout 2024.

John C. Plant: Finally, let's move to slide 10. Forged wheels revenue was essentially flat year over year in a challenging market. However, although revenue was essentially flat, EBITDA increased 4% driven by volume and productivity, and even a healthy 28.5%. With that, now, I now turn it back over to John.

John C. Plant: Finally, let's move to slide 10.

John C. Plant: Forged wheels revenue was essentially flat year over year in a challenging market.

John C. Plant: Although revenue was essentially flat EBIT increased 4% driven by volume and productivity.

John C. Plant: EBITDA margin was a healthy 28, 5%.

John C. Plant: With that now let me turn it back over to John.

John C. Plant: Okay.

John C. Plant: Thanks Ken, and let's move to slide 11 to show our progress on ESG. We continue to leverage our differentiated technologies to help our customers manufacture lighter, more fuel-efficient aircraft and commercial trucks with a lower carbon footprint. Howmet remains committed to managing our energy consumption and environmental impacts as we increase production. In 2023, we continue to progress against our 2024 greenhouse gas emissions goal by achieving a 20% reduction in total greenhouse gas emissions from 2023 compared to 2019, which is our baseline year. We're tracking well to 2024 goals of a 21.5% reduction. I would like to draw your attention to the issuance of our annual ESG report in April, which details the good progress we've made.

John: Thanks, Ken and let's move to slide 11 to show our progress on ESG.

John C. Plant: We continue to leverage our differentiated technologies to help our customers manufacture lighter more fuel efficient aircraft and commercial trucks with lower carbon footprints.

John C. Plant: <unk> remains committed to managing our energy consumption and environmental impacts as we increase production.

John C. Plant: In 2023 continue we continue to progress against our 2020 for greenhouse gas emissions goal by achieving a 20% reduction in total greenhouse gas emissions from 'twenty to 'twenty three.

John C. Plant: 2019.

John C. Plant: Our baseline yeah.

John C. Plant: We're tracking well to our 2020 full goals I'd like 21, 5% reduction.

John C. Plant: I would like to draw your attention to the issuance of our annual ESG report in April which details the good progress we've made.

John C. Plant: Additionally, in the report we reflect 2027 goals for HUD that we chose to continued progress on our baseline year of 2019 with a full 33% reduction in greenhouse gas emissions.

John C. Plant: Additionally, in the report, we reflect 2027 goals for Howmet, which shows continued progress on our baseline year of 2019, with a full 33% reduction in greenhouse gas emissions. Now, let's turn to slide 12 and start to talk about the outlook for the business. Firstly, I'll address commercial aerospace, which represents our largest revenue market. Demand for air travel continues to be very strong and, if anything, will be constrained during the summer season by the availability of new aircraft, especially narrow body aircraft. Asia-Pacific travel, which has been lagging behind the U.S. and Europe, has been increasing rapidly and is now back to approximately 90% of pre-pandemic levels.

John C. Plant: Now, let's turn to slide 12, and start to talk about the outlook for the business.

John C. Plant: Firstly, I'll address commercial aerospace, which represents our largest revenue market.

John C. Plant: For Air travel continues to be very strong.

John C. Plant: If anything it will be constrained during the summer season by the availability of new aircraft, especially narrow body aircraft.

John C. Plant: Asia Pacific travel, which has been lagging the U S and Europe has been increasing rapidly and he snapped back to approximately 90% of pre pandemic levels.

John C. Plant: International Asia-Pacific travel was up approximately 50% in recent months and speaks well to future aircraft demand, especially wide-body aircraft. Crate requirements also continue to be robust. The one item that needs to be said is the fact that the FAA restrictions on the Boeing 737 MAX production of 38 per month in the light of continuing quality problems at Boeing. These facts have been extensively reported in the press and have resulted in lower production, well below the prior levels of approximately 30 aircraft per month, which in itself was well below the 2023 targets of 38 aircraft per month. Clearly, the prospect of going up to rate 42 and rate 47 per month is now unlikely in 2024. This has caused Howmet to completely replant his entire year.

John C. Plant: International Asia Pacific travel was up approximately 50% in recent months and speaks well to future aircraft demand, especially wide body aircraft.

John C. Plant: Great requirements also continues to be robust.

John C. Plant: The one item that needs to be said that it is the fact of the S. A a restriction on the Boeing 737, Max production of 38 per month in the lights of continuing quality problems at Boeing.

John C. Plant: These facts are extensively reported in the press.

John C. Plant: And have resulted in lower production well below the prior levels of approximately 30 aircraft per month.

John C. Plant: Machine itself was well below the 2023 targets of 38 aircraft a month.

John C. Plant: He is the prospect of getting up to rate 42, and right 47 per month is now unlikely in 2024.

John C. Plant: This is close to completely re plant yeah.

John C. Plant: And we've concluded that a further reduction in bills to approximately 20 aircraft per month average for the year is a more secure assumption than that previously reported of 34 aircraft per month. As we re-plan our year, we've taken account of this revenue adjustment while re-planning other areas of our business, for example, spares, defense, and wheels revenues, and we net all of this re-planning out to an overall increase of approximately $200 million in revenue for 2024.

John C. Plant: We've completed that a further reduction in build to approximately 20 aircraft per month on average for the year is a more secure assumption than that previously reported a 34 aircraft per month.

John C. Plant: As we re plan our yeah. We've taken account of this revenue adjustment while re planning of the areas of business for example, spaz defense and wheels revenues.

John C. Plant: And we net all of this re planning out to an overall increase of approximately $200 million of revenue for 2024.

John C. Plant: This guide reflects continuing strong Airbus production in line with the overall planned percentage increase of aircraft of approximately 9%. We now envisage, as an example, wheels revenue being higher than previously expected in Q1 and Q2, while continuing to expect a reduction in the second half of the year. In the second half, we expect this to be offset by higher widebody build, especially in preparing it to move into 2025, complemented by robustness in spares, defense, and IGT sales. However, we do expect Boeing to trim back production part schedules for the 737 MAX to lower levels than previously envisioned.

John C. Plant: This guide reflects continuing strong Airbus production in line with the overall plan percentage increase of aircraft of approximately 9%.

John C. Plant: We now envisage as an example meals revenue being higher than previously expected in Q1 and Q2.

John C. Plant: We're continuing to expect a reduction in the second half of the year.

John C. Plant: In the second half, we expect this to be offset by higher wide body build especially in preparing to move into 2025 complemented by robustness in space defense and IGT sales.

John C. Plant: However, we do expect Boeing to trim back production part schedules for the 737 Max to low levels than previously envisioned ambition.

John C. Plant: Yeah.

John C. Plant: In terms of specific numbers, in Q2, we expect revenue to be $1.835 billion plus or minus $10 million, EBITDA of $440 million plus or minus $5, and earnings per share of 58 cents plus or minus a penny. For the year, we see revenues around $7.3 billion, plus or minus $75 million. It would be a decline of 1.75 billion, plus or minus 30.

John C. Plant: In terms of specific numbers in Q2, we expect revenue to be 1.8, 35 billion, plus or minus 10 million EBITDAR of $440 million plus or minus five.

John C. Plant: Earnings per share of 58 cents, plus or minus a penny.

John C. Plant: For the year, we see revenues around seven 3 billion, plus or minus 75 million EBIT.

John C. Plant: EBITDA of 1.75 billion, plus or minus let's say.

John C. Plant: Earnings per share of $2.35 plus or minus $0.04. Free Cash Flow of $800 million plus or minus $50 million. Clearly, the diversity of Howmet product revenues and solidity of performance can be seen in these numbers.

John C. Plant: Earnings per share of $2.35, plus or minus full sense.

John C. Plant: On free cash flow of 800 million plus or minus $50 million.

John C. Plant: Clearly the diversity of product revenues and solidity of performance can be seen in these numbers.

John C. Plant: We're pleased with the resulting increased outlook and free cash flow in particular. Therefore, we expect to increase our dividend payout in the second half of the year, starting with the payment in August, pending board approval. Specifically, the expected dividend increase is $0.02 per share to a total of $0.07 per share, which is a 40% increase.

John C. Plant: We are pleased with the resulting increased outlook and our free cash flow in particular.

John C. Plant: Therefore, we expect to increase our dividend payoffs in the second half of the year, starting with the payment in August pending board approval.

John C. Plant: Specifically the expected dividend increases two cents per share to a total of seven cents per share, which is a 40% increase.

John C. Plant: This notably maintains the 2023 dividend yield. The balanced capital allocation plan also continues. Capital expenditure has increased over 2022 and 2023 levels and is now a little ahead of depreciation. The main thrust continues to be the expansion in our engines business to achieve the market share increases that I already talked about on the last call. The majority of the other uses of free cash flow in terms of capital allocation will be shared buyback in 2024, while still preserving the ability to pay down the stub of the 2024 bond of 200 million should we decide to do so.

John C. Plant: This notably maintains the 2023 dividend jailed.

John C. Plant: Our balanced capital allocation plan continues.

John C. Plant: Capital expenditure was elevated at about 2022, and 2023 levels and is now a little ahead of depreciation.

John C. Plant: The main thrust continues to be the expansion yeah engines business to achieve the market share increases that I already talked about on the last call.

John C. Plant: The majority of the other uses of free cash flow in terms of capital allocation will be share buyback in 2024.

John C. Plant: While still preserving the ability to pay down the stuff up to 2024 bombs off 200 million should we decide to do so.

John C. Plant: I'm also sure that we will focus on refinancing the 2025 bonds later in the year or, at the latest, in early 2025. I thought it would be useful to provide more of an extensive roadmap to our capital allocation thoughts during this call. In terms of net leverage, we're also envisaging getting closer to our minimum net leverage target of towards 1.5 times net debt to EBITDA by year end from the two times that we currently have at the end of Q1.

John C. Plant: I'm also sure that we will focus on refinancing the 2025 bond and the slate for the year.

John C. Plant: Oh the latest in early 2025.

John C. Plant: I thought it useful to provide a more of an extensive roadmap to our capital allocation thoughts during this call.

John C. Plant: In terms of net leverage we're also envisaging getting closer to a minimum and that leverage target up towards one five times net debt to EBITDA by year end almost two times that we currently have at the end of Q1.

John C. Plant: Yeah.

John C. Plant: In summary, moving to the summary slide, we have had a strong start to the year. We have incremental EBITDA margins of 35% and an operating margin now over 20%. We have the ability to withstand the reduced narrow body build, notably from Boeing.

John C. Plant: In summary, moving to the summary, slide we have a strong start to the year.

John C. Plant: Incremental EBITDA margins of 35% and operating margin narrowed by 20.

John C. Plant: We have the ability to withstand the reduced narrow body build notably from Boeing.

Operator: We have a complete reworking of our year. We've increased the guide by 200 million dollars of revenue at midpoint and the margin rate from 23% to 24%, and we've increased cash flow just under $100 million. We also noted that we expect to raise dividends by 40% in the second half of the year and that we have a clear plan for the balance of 2024 in terms of capital allocation. Thank you, and we'll now move to Q&A.

John C. Plant: We have a complete re planning of our yeah.

Operator: We've increased the guidance by $200 million of revenue mid point and the margin rate from 23% to 24% and.

Operator: And we've increased cash flow just under $100 million.

Operator: Okay.

Operator: We also noted that we expect to raise the dividend by 40% in the second half the year.

Operator: And we have a clear plan for the balance of 'twenty 'twenty four in terms of capital allocation plans.

Speaker Change: Thank you and we'll now move to Q&A.

Operator: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the key. To withdraw your question, please press star then 2. In the interest of getting to as many questions as possible, please limit yourselves to one question today. The first question is from Noah Poponak with Goldman Sachs. Please go ahead.

Speaker Change: We will now begin the question and answer session.

Noah Poponak: To ask a question you May press Star then one on your telephone keypad.

Operator: If you are using a speakerphone please pick up your handset before pressing the keys.

Noah Poponak: To withdraw your question. Please press the pound excuse me Star then two.

Noah Poponak: In the interest of getting to as many questions as possible. Please limit your self to one question today.

Noah Poponak: The first question is from Noah <unk> with Goldman Sachs. Please go ahead.

Noah Poponak: No. It perhaps your line is muted on your end as to open on ours.

Operator: Yeah.

Operator: Noah, perhaps your line is muted on your end; it's open on ours. Hello? Hello? Can you hear me? We can hear you now. Please go ahead.

Operator: Okay.

Noah Poponak: Hello Hello.

Noah Poponak: We can hear you now please go ahead.

Noah Poponak: Hey, good morning, everyone.

Noah Poponak: Good morning, Noah. Hey, John. I appreciate all the detail there. I wonder if you could just talk a little bit more about the MACS, you know, what what underlying rate did you actually deliver in the quarter? And how are you assuming it will move through the year? And I guess, you know, listening to some other suppliers and Boeing through the earning season, it kind of sounded like Boeing kept the supply chain moving along somewhere near 30 despite their deliveries and then would plan to start to, you know, hope to start to ramp back up in the back half of the year. But your comments sound like maybe that didn't happen or that's not what you're seeing. So if you could just provide a little more clarity on that, that'd be great. Thank you.

Noah Poponak: Hey morning.

Noah Poponak: Hey, John appreciate all the detail there I wonder if you could just talk a little bit more about the Max.

Noah Poponak: What underlying rate did you actually deliver two in a quarter.

Noah Poponak: And how are you assuming that it moves through the year and I guess, you know listening to some other suppliers and Boeing through the earnings season, it kind of sounded like Boeing kept the supply chain moving along.

Noah Poponak: Somewhere near 30, despite their deliveries and then we would plan to start to you know hope to start to ramp back up in the back half of the year your comments sound like.

Noah Poponak: Maybe that didnt happen or that's not where you're saying so.

Noah Poponak: If you could just provide a little more clarity around that.

Speaker Change: Thank you.

John C. Plant: You know, I'd like to give you a really clear-cut answer, but I find it a little bit confusing in the first quarter. What we saw was schedules at rate 38, and I assume that Boeing had assumed that they would achieve that rate. I don't know, whereas we note that actual bills were substantially less than that and probably well below 20. And therefore, the increase in inventory, let's call it, I don't know, 15 to 38 per month, plus the seven months of last year where rate 38 had been assumed, but more like a build of 30, has obviously resulted in increased inventories in Boeing.

Speaker Change: Yeah, I I'd like to give you a b C or cut answer but.

John C. Plant: I find it a little bit confusing.

John C. Plant: And the.

John C. Plant: What we saw was in the first quarter.

John C. Plant: Schedules that rates 38.

John C. Plant: And I I assume that Boeing could consume let's assume that they would achieve that rate. So I don't know.

John C. Plant: Whereas we know the actual bills was such that she left the math and probably well below 20.

John C. Plant: Therefore, the increase in inventory, let's say, let's call it either that 15 to 38.

John C. Plant: 10 months plus the seven months of last year, where rates 38 had been soon but more like a build of AR facility.

John C. Plant: This resulted in all of the state increased images and Boeing.

John C. Plant: We've heard statements to the effect that the. [inaudible] So we're trying to be fairly cautious in that, you know, because while they say that they're going to achieve rate 38 in the second half, I guess we'd like to see it done absolutely, but are unclear that it's going to be done. So in terms of, for example, in our fastener business, where we operate more to a min-max system, where Boeing had probably been wanting to increase their minimum levels, we assumed and dropped our assumptions down to deliver no more than the absolute minimum, which is where our contract with them lies.

John C. Plant: We've heard statements to.

John C. Plant: So the effect. The if you go back to January the absolute you know, we'll keep rate 38 are in terms of our production scheduling to a more recent commentary.

John C. Plant: By we've advised our suppliers will be advising suppliers.

John C. Plant: Trimming our requirements according to our rate needs and of course, it's very difficult to know exactly what that means in terms of what the assumed rate needs are.

John C. Plant: So we were trying to be fairly cautious in that you know because while they say that they can achieve rate 38 in the second half.

John C. Plant: I guess, we'd like to see done absolutely, but unclear that it's going to be done.

John C. Plant: So in terms of for example in our fastener business. The way we operate most of them made back this up.

John C. Plant: Hum.

John C. Plant: Whereas Boeing at Po rebate and wanting to increase the minimum levels, we've assumed that dropped out of assumptions down to deliver <unk> to the to the absolute minimum which is where our contract with the lies.

John C. Plant: And so we could be trying to prevent the case where we get caught with a lot of, say, changes in schedule on a rapid basis and then caught with inventory. We're also making the assumption in our cash flow that those schedules are cut and that we will have a training list of requirements that we've ordered from our suppliers for long-lead-time items that they will have to honor for the most part, and therefore, we'll be taking materials that we may not be delivering in 2024.

John C. Plant: So we could be trying to prevent the case, where we get caught with a lot of let's.

John C. Plant: You say changes schedule on a rapid basis, and then caught with inventory.

John C. Plant: We're also making an assumption in our cash flow is that.

John C. Plant: But those schedules.

John C. Plant: <unk>.

John C. Plant: And we will have trading list of of requirements that we have or the dot our suppliers for a long lead time items that they will have to own that for the most part and therefore, we will be taking materials in which we may not be delivering in 2024.

John C. Plant: So we're just trying to pick our way through what the best set of assumptions are. What we do know is that GE have changed their requirements for the LEAP-1B engine, and you've seen that announcement in a clear statement, but I think that year on year, instead of expecting maybe a 25% increase from, let's call it, 1.75 million engines to 1925, it's now more like a 1,700 number, so it's more like a 10% to 15% increase year on year, but that obviously comes back out during the balance of years, so it's a very mixed picture that we can draw on, and so we're providing the best assumptions we can, so we're thinking that we're going to get cut back, at the same time with the increases that we're expecting for 2025, so if, for example, Airbus increases the A320 from, let's call it, normally 55 a month to 65 a month, then some of that demand will have to be delivered in the second half of this year.

John C. Plant: So I'm just trying to pick our way through what the best set of assumptions all what we do know is that the G have changed their requirements for the leap <unk> engine and you've seen that announcement in a clear statement, but I think that year on year instead of expecting.

John C. Plant: Maybe at 20, 25% increase in Med school and at 1.75 million.

John C. Plant: In engine the student like 19 twenty-five snapple like a seven to 800 number it's more like a 10 to 15.

John C. Plant: The percent increase year on year, but that obviously comes back out of doing the bottoms up here. So it's you know it's a very mixed picture.

John C. Plant: We can draw on them so.

John C. Plant: We are providing the best assumptions, we can so we're thinking that we're going to get cut back the same time.

John C. Plant: With the increases that we're expecting for 2025 so.

John C. Plant: For example, a bus increase is the Ace III 20, some let's call. It nominally 55, a month of 65, a month and some of that demand will have to be delivered in the second half of this year.

John C. Plant: At the same time, if Boeing does increase their rates, we're going to have to address that, so it's trying to pick your way through all of those assumptions, and so we've tried to do that, and I know that during the course of the Q&A that I'll be going through on this call, I'll try to give you a volume walk from previous assumptions to the new assumptions. That's about as best I can do on the whole Boeing. I'll say Boeing comes in the Spirit Aerospace part of the equation, which is what you asked about.

John C. Plant: The same time, you know if Boeing do increase that rate, we're going to have to address that so it's trying to pick your way through all of those assumptions.

John C. Plant: So we have a we've tried to do that.

John C. Plant: And I.

John C. Plant: I have no doubt during the course of the Q&A.

John C. Plant: I'll be going through on this call I'll try to give you a volume walk from our previous assumptions to the new assumptions that's about as best I can do on the whole Boeing I'll say Boeing come spirit Aerospace part of the equation, which is what you asked about.

John C. Plant: Okay.

Operator: We've managed it well, and I appreciate you taking the questions. Thank you. Thank you. The next question is from Robert Stallard with Vertical Research. Please go ahead. Thanks so much. Good morning, and Rob. John, maybe a follow-on.

John C. Plant: We've managed it well and I appreciate you taking my questions. Thank you.

Robert Alan Stallard: Thank you.

Operator: The next question is from Robert Stallard with Vertical Research. Please go ahead. Thanks so much. Good morning. Hi Rob.

Operator: The next question is from Robert Stallard with vertical research. Please go ahead.

Robert Alan Stallard: Thanks, so much good morning.

Operator: Rob.

Robert Alan Stallard: John maybe a follow on from Noah's question on the rights. Boeing has also seems to have slipped behind on the 787. So I wondering if you could give us an idea of what you're now expecting for that because I think they're saying they want to get back up to five.

Operator: And supply chain is shipping at five but they don't producing and five you know what I mean.

Robert Alan Stallard: Yeah, so we cut our assumption from six aircraft per month down to five. I don't know that we're going to see parts schedule changes for the sake of two aircraft a month, especially if they're going to get back up to rate five by the second half of the year. So we recognize that we've been producing ahead.

Robert Alan Stallard: Yeah. So we we cut our assumption from six cross play moms down to five.

Robert Alan Stallard: Hum.

Robert Alan Stallard: I don't know that we're gonna see parts schedule changes for the sake of two aircraft a month, especially if they're going to get back up to eight five by the second half of the year.

Robert Alan Stallard: So we recognize that we've been producing.

Robert Alan Stallard: Had.

John C. Plant: It's a current actual bill rate because of the supply constraints that Boeing says that they've had, which clearly have not been from Howmet, but you know we've not taken it down to three; we just assumed five for the year, so that's where it stands for 787. And this is one that's also going to be ramping up a bit further in the second half, anticipating further rate increases for 2025. Yes, and that's also part of our thinking is that, you know, previously, our assumptions had been going to rate seven at the back end of this year, ahead of where we'd assumed at six. That's where we thought it was going to go.

Robert Alan Stallard: That's our current actual build rates because of they are the supply constraints that Boeing say that they've had which clearly has not been from how bad.

John C. Plant: But.

John C. Plant: We've not taken it down to three we just assumed five for the year. So that's our that's the way it stands for 787.

John C. Plant: And as this one but it's also going to be ramping up a bit further.

John C. Plant: In the second half are anticipating further rate increases for 2025.

John C. Plant: Yes, and that's also part of our thinking is that you previously.

John C. Plant: Our assumptions have being going to rate seven.

John C. Plant: The back end of this year.

John C. Plant: Yeah ahead of where we'd assumed success, where we thought he was going to go.

John C. Plant: And then probably with a higher rate sometime in 2025 on their march to 10 aircraft per month, which I noticed has now changed from 2025 to 2026. So, you know, the assumptions seem to be a little bit slower and taking a little bit longer. And, you know, but nevertheless, we are thinking that there will be an increase above rate five as we go into 2025 and trying to build that into that's why we said we'd only move from six per month down to five in 2024.

John C. Plant: And then probably with a higher rate sometime in 2025.

John C. Plant: On their March to 10 aircraft.

John C. Plant: After a month, which I noticed not change from 'twenty to 'twenty five to 'twenty 'twenty six so you know.

John C. Plant: The assumptions seem to be a little bit slow in taking a little bit longer.

John C. Plant: And Oh, yeah, but nevertheless, we are thinking that will be there will be an increase above <unk> five as we go into 2025 and trying to build that into that's why we said we don't need moved from six months down to five in 2024.

Speaker Change: Yeah that makes sense. Thanks, so much.

Speaker Change: Thank you.

Operator: The next question is from Robert Spingarn with Milius Research. Please go ahead.

John C. Plant: The next question is from Robert Spingarn with Melius Research. Please go ahead.

Robert Michael Spingarn: Hey, good morning.

Robert Michael Spingarn: John, I'm going to ask again about the 737. You've been crystal clear that the situation is unclear.

Robert Michael Spingarn: John I'm going to ask again about the 737, you've been very crystal clear that the situation is unclear having said that though.

John C. Plant: Having said that, though, I'm curious if somehow Boeing gets above 20, later this year. Is there enough inventory in the channel, whether you have it or they have it or GE has it, to support higher production rates at Boeing or can you ramp quickly? How do we think about when you'd need a signal and how you might respond?

John C. Plant: I'm curious if somehow Boeing gets above 20.

John C. Plant: Later this year.

John C. Plant: Is there enough inventory in the channel, whether you have it or they have it or or G has it to support higher production rates at Boeing or can you ramp quickly how do we think about when you would need a signal on what how you might respond.

John C. Plant: Yes, so should Boeing produce rate 38. I'm very clear that we'll be at rate 38 with them. And should GE reinstate the planned increase to the 1925 level of LEAP engines, which obviously got part of it, it became the 1B, we'll be able to meet rates. Again, on labor, you can see while we've increased the overall guidance and therefore our labor recruitment will be fairly robust, we have enough flexibility to be able to cope with those rate assumptions because, again, we'll know months ahead if they're actually achieving that. It won't be like going from, let's say, rate 15 to rate 38 in a month. It's going to happen slowly and gradually if it occurs.

Speaker Change: Yes, so sure.

John C. Plant: Should Boeing produce.

John C. Plant: Right 38.

John C. Plant: I'm very clear that will be outright says he ate with them.

John C. Plant: Should G reinstates.

John C. Plant: The planned increase to the 1925 level of leap engine, which has obviously got pardon me, indicating that one day.

John C. Plant: We will be able to meet right.

John C. Plant: Well the as you know we keep again on labor you can see is while we've increased our full guidance and therefore, our labor could be fairly robust is that we will we have enough flexibility to be able to cope with those rate assumptions because again they'll know.

John C. Plant: Months ahead, because I am actually achieving that it won't be like go from let's say right 15 to write 38 months, it's going to happen slowly and gradually if it occurs.

John C. Plant: Okay, okay, and then just as a follow-up, when we look at the commercial aerosails at fasteners and its structures, they outperformed, versus the engine product segment, despite the issues at Boeing. I was wondering if you could add some color on how you managed to decouple your commercial aero growth from Boeing's bill rate.

Speaker Change: Okay. Okay, and then just as a follow up when we look at the commercial Aero sales at fasteners and its structures they outpaced.

John C. Plant: You know versus the engine products segment. Despite the issues at Boeing I was wondering if you could add some color on how you manage to decouple your commercial aero growth from Boeing's Bill rates.

John C. Plant: I think to some degree it reflects C, the revenue potential, and earnings potential of Howmet when it achieves the increased rates. And so, you know, while Boeing on the 787 might have been building at three, but we were building in the first quarter of our parts at a rate significantly above that. So let's assume rate six, or even rate 7.

John C. Plant: I think to some degree it.

John C. Plant: It reflects.

John C. Plant: The.

John C. Plant: Revenue potential and earnings potential.

John C. Plant: But I need to achieve the increased rates and so you know.

John C. Plant: While Boeing say almost 787 might be building at three but we were building a in the first quarter of all parts.

John C. Plant: Right significantly above that so let's assume right six.

John C. Plant: And so this is obviously a very good dynamic for the business and then showed, I thought, excellent margin improvement in the business, which was a combination of operational performance, commercial performance, and the mix. And when that happened, you know, we put on 500 plus basis points in margin improvement year over year. And there's still, I don't know what it was, 200 basis points sequentially. So all really good.

John C. Plant: Or are you hearing right seven.

John C. Plant: And so this.

John C. Plant: That's obviously a very good dynamics of the business and then showed with adult which was excellent.

John C. Plant: Margin improvement in the in the business, which was a combination of operational performance commercial performance and the mix and when that happens you know we've put on 500 plus basis points of margin improvement year over year, and there's still a problem I don't know what it was 200 basis points sequentially. So all really.

John C. Plant: And obviously, you know, we're trying to work out exactly what. The assumption I've made is that we go down to rate 5 on the 787 and obviously a much lower rate on the 737, albeit, as you know, there's a metallic fastness that they don't quite have the richness of mix that we get on a composite aircraft. At the same time, with Airbus, as you know, the A350 is a composite-based aircraft, and so the rate increase that we've seen there, and also as we prepare for further rate increases and further rate increases in 2025, then again, that's all, you know, looking positive for Howmet.

John C. Plant: Good.

John C. Plant: Obviously, you know we were trying to work out exactly what.

John C. Plant: That will be as you know the assumption I made is that we'd go down too right.

John C. Plant: Five almost seven eight and seven and obviously a much lower rate on the 737 mm obeys as you know there's a metallic fasteners like they don't quite have the richness of the mix.

John C. Plant: Tell him to accomplish at that craft.

John C. Plant: Same time with Airbus.

John C. Plant: As you know the 838, they ace III fifties accomplish it buy used aircraft and so it was a rate increase that we've seen that and also as we prepare for the rates the rates increase in 2025 and again that's all.

John C. Plant: Looking positive for five minutes.

John C. Plant: Okay.

John C. Plant: Does that mean that possibly the first quarter is a high point with regard to something like 787 fasteners or if you were at rate 7 and they're at rate 3, and you get the point? Yeah, I mean, well,

John C. Plant: Does that mean that possibly the first quarter is a high point with regard to some of you know something like a 7878 and seven fasteners or you know if you were right seven in there at rates three and you get the point.

John C. Plant: Yeah, I mean, what we've guided you on in Q2 is that, in fact, revenues would be slightly higher than... Q1. So, you know, we're still expecting things to be good overall. The roadmap for our year would be, you know, we're cautious because of the rate assumptions I've given you on the 737 and therefore expecting to have the impact of that. Plus also, as you heard me talk about in my prepared remarks, we are expecting weakness in our commercial wheels business in the second half of the year.

John C. Plant: Yeah, I mean, what we've guided you in Q2's.

John C. Plant: Revenues will be slightly higher.

John C. Plant: Our Q1, so you knew where we were still expecting overall to be good.

John C. Plant: Not for a year it would be you were.

John C. Plant: Cautious because of the rate assumptions aren't giving you on the almost 737.

John C. Plant: And therefore expecting to have the impact of that plus also as you heard me talk about on my prepared remarks is that we are expecting weakness in our commercial wheels business in the second half of the year.

John C. Plant: So far, we've been pleasantly surprised by the strength in that segment. Clearly, we hope it continues, but we are planning again for some reduction because we've already heard customs like PAC are reducing their commercial Class 8 truck build as they go forward. So, again, it's a different number in the US, maybe a 10% truck build reduction we're thinking of in North America and maybe something a little bit higher in Europe, offset by whatever penetration we can achieve in terms of aluminum versus steel.

John C. Plant: So far we've been pleasantly surprised by our by the strength in that segment.

John C. Plant: Clearly, we hope it continues but planning again.

John C. Plant: For some reduction.

John C. Plant: Because we've already had a customs like park, all reducing the commercial class eight truck build.

John C. Plant: As they go forward. So again, it's a different number in the U S. Maybe a maybe a 10% capital reduction we are thinking of in North America, and maybe something a little bit higher in Europe offset by whatever the penetration we can achieve in terms of the Loopnet does your steel so but important thing I saw it in the in this.

John C. Plant: But the important thing I thought in this quarter was that we were able to really operate at a really good level and achieve a rate increase from, let's say, 26.5%, 27% EBITDA margins to like 28.5%. And that's really good because I'm not saying supply is more leveraged at the operating margin than the EBITDA margin level. So, it was all good. So it's a cautious assumption on the commercial strike in the second half, and a cautious assumption around Boeing max production coming off, as I talked about earlier, a rate 38 scheduling in Q1.

John C. Plant: Quarter was that we were able to really operate at a really good level isn't achieved a rate increase lets say 26, and a half 27% EBITDA margins to like 28, and a half and that's really good except obsoletes a supply is more language at the operating margin the EBITDA margin levels that it was all good.

John C. Plant: So it's it's a cautious assumption on commercial truck in the second half a cautious assumption of Boeing Max production.

John C. Plant: Coming off it's about as I talked about earlier right 30.

John C. Plant: 38 <unk>.

John C. Plant: Scheduling in Q1.

Speaker Change: Thank you John.

Speaker Change: Thank you.

Operator: The next question is from Doug Harned with Bernstein. Please go ahead.

John C. Plant: The next question is from Doug Harned with Bernstein. Please go ahead.

Douglas Stuart Harned: Good morning, thank you. I'm on your tab.

Douglas Stuart Harned: Good morning, Thank you.

Douglas Stuart Harned: Morning, Tom.

John C. Plant: I want to switch away from Boeing here for a moment, and you know, earlier this year, GE started making the first shipments of its redesigned LEAP-1A HPT blades to Airbus. These are intended to last longer in harsh environments, and we expect to see that similarly for the LEAP-1B. Eventually, a year from now, we're going to see something done on the GEAR Turbofan. When you look at these new designs, how do you see that affecting your outlook in terms of facilities that are more expensive, the amount of turnover you might have in the aftermarket, and better pricing potential on these new designs?

Douglas Stuart Harned: I wanted to I wanted to switch away from Boeing here for a moment and.

John C. Plant: Earlier this year.

John C. Plant: G E.

John C. Plant: Sorry to make the first shipments of its redesigned leap when a H P T.

John C. Plant: Blades to Airbus.

John C. Plant: These are intended to.

John C. Plant: Last longer in harsh environments, and we expect to see that similarly for the leaf wouldn't be eventually a year from now we're going to see something done in the geared turbofan. When you look at these new designs.

John C. Plant: Four blades, how do you how do you see that affecting your outlook in terms of presumably these are more expensive.

John C. Plant: Out of turnover you might have in the aftermarket and better pricing potential on these new designs.

John C. Plant: Okay, maybe the best thing I can do is to give you a picture of the revenue walk for the company first and then return to the specific question of improved durability as a second subject. So, our assumption is that... We're thinking that we'll have a, let's say, a hit from the max. Production of Sumption from the 34 rate we'd assume in Q1 to the 20 rate, and so that's something well over a hundred million of a hit, and then we see that being offset by an increased robustness of our defense sails, and you saw those up 12% in Q1, which was significantly higher than our assumption, which was mid-single digit. So I'd say that's 60 million-ish, give or take On wheels, we think the first half is going to be stronger than we thought.

John C. Plant: Okay, maybe the best thing I can do is to give you a picture of the revenue for the company first and then return to the specific question I would say our improved durability a second subject.

Speaker Change: Yeah. So.

John C. Plant: In our assumption.

John C. Plant: <unk> is the.

John C. Plant: We're thinking that we'll have a let's say.

John C. Plant: Hit from the Max.

John C. Plant: We don't shouldn't have assumption from the.

John C. Plant: 30 full rate, we'd assumed in Q1, 'twenty right and so that.

John C. Plant: Something well over 100 million of a hit.

John C. Plant: And then we.

John C. Plant: We see that being all sex.

John C. Plant: With an increased robustness about defense sales and you saw that was up 12%.

John C. Plant: In Q1, which was significantly higher than our assumption, which was mid single digits.

John C. Plant: So that's 60 million ish give or take.

John C. Plant: So let's call that 50 million-ish on wheels. And then with our other sectors that we serve, for example, like oil and gas, you heard us talk about a 15% increase there. And while IGT was flat in Q1, we're thinking of a mid-single digit increase for the year for IGT and industrials. So there's another 60 million.

John C. Plant: On wheels, we we think the first half is going to be stronger than we thought so lets call out 50 million ish on wheels and.

John C. Plant: Then with our other sectors that we serve for example, like oil and gas you heard us talk to a 50% increase there and while IGT was locked in Q1, and we're thinking of a mid single digits increase for the year for IGT and industrials has another 60 million so essentially all of the.

John C. Plant: All of the Max tightened more it gets covered by those items.

John C. Plant: So essentially, all of the Maxit and more gets covered by those items, and then the big one I think is our assumption around spares, which is we've put in an increased revenue assumption of over 120 million plus on our spares lift. And that reflects, let's say, a further aggregate 25% lift in our spares business year-on-year and more like 35% on commercial aero. So that's pretty significant, and now the rate, the spares revenues are substantially above 2019 levels, so 2019 was about 800 million. I think 1.1 billion plus is in that area.

John C. Plant: And then the big one.

John C. Plant: <unk> is our assumption around spares.

John C. Plant: Which is we've put in an increased revenue assumption of over 120 million plus on a specialist.

John C. Plant: And that reflects itself for the aggregate, 25% lift in our Spanish business year on year round.

John C. Plant: Like a 35% on commercial Aero.

John C. Plant: So that's pretty significant now.

John C. Plant: The the rate the spares revenues all substantially above.

John C. Plant: 2019 levels say 2019 was about 800 million.

John C. Plant: 1.1 billion plus.

John C. Plant: And in that area. So the if you see that on the OE side. It was all about and that's offset you can see of a total 200 million increase let's call. It 120 million plus plus comes from the the spacing assumption.

John C. Plant: So if you assume that on the OE side it was all about net offset, you can see that of our total 200 million increase, let's call it 120 million plus plus comes from the spares assumption, and so that's how you get there. In terms of when you think through what's going on at the moment, clearly, the existing engine, which is now all past models, which is the CFM 56, then we have not yet seen the peak of spares for that business.

John C. Plant: So that's that's how you get there.

John C. Plant: And in terms of when you think through what's going on in a moment clearly.

John C. Plant:

John C. Plant: The existing engine, which is now all pass model, which is the CFM 56, then we have not yet seen the peak spend for that business because of the.

John C. Plant: And because of the lack of current narrow-body production by Boeing means that the airlines are working the fleet harder. Therefore, CFM56. It's probably going to peak more like 25, maybe 26 now, and that's still increasing. So that's good.

John C. Plant: Lack of current narrow body production by Boeing.

John C. Plant: The scan lines of work in the fleet harder. Therefore, CFM 56 is probably going to be more like 25, maybe 26 now and that is still increasing so that's good.

John C. Plant: The 737 MAX is, you know, it's obviously been having its own increase in, let's say, MRO shot visits. And on the current version of the LEAP engine, those won't peak, in my view, until well after 2030. And so we're seeing an increase there. And I've also talked on the last earnings call about the immediacy of the time on wing issue, and they're producing a little bit of extra revenue. I probably overstated calling it a bubble for three or four years, but that's going to go on both for the LEAP engine and, in particular, the geared turbo fat, and that's well reported.

John C. Plant: The 737 Max is.

John C. Plant: Obviously been having its own increase in MRO shop visits.

John C. Plant: And on the current version of the Leap engine those will peak in my view until well after 'twenty Saatchi and so are we seeing an increase there and I've also talked on the last earnings call about the immediacy of the time on wing issue and they're producing a little bit of extra rent or do you like a copy of this.

John C. Plant: Stay to calling it a bubble of all three or four years, but that's going to go on both for for the leap engine and in particular, the geared turbofan and that's where all reported.

John C. Plant: I think that what we'll see is that there will be a gradual introduction of the new improved robust turbine blades and that's probably more significant as we go into 2025 and beyond than it is in in 2024 but that obviously the the assuming that that is successful in terms of the durability and I you know have every reason to believe it will be then I guess that affects shop visits coming I'll make it up now 2030 and beyond but meanwhile of course we'll have the benefit of of LEAP current you know production for the last it's called, 8 years and the gear turbofan for longer, that would be increasing. That's a road map through.

John C. Plant: I think what we'll see is that they will be a gradual introduction of the new improved robust bind blades.

John C. Plant: Yeah.

John C. Plant: And that's probably more significant as we go into 'twenty five.

John C. Plant: And beyond than it is in our in 2024.

John C. Plant: Obviously, the if it assuming that that is successful.

John C. Plant: In terms of just your ability and I have every reason to believe it will be then I guess that affects shop visits coming I'm, making up about 2030 and beyond.

John C. Plant: Meanwhile of course, we will have the benefits of I believe our current production for the last let's call it.

John C. Plant: Eight years on the geared turbofan for them for longer that would be increasing that's the roadmap through so it's a long way of saying we should have improved.

John C. Plant: So it's a long way of saying we should have improved, I'll say, the economics around the more robust fixes for GTF and LEAP to fix time one-wing issues, plus the increased spares demand initially from the CFM56, which is still coming at us, and it's good, and then obviously further increases for the LEAP and gear turbofan, which include the time one-wing issues that are well reported.

John C. Plant: I'll say economics around the more robust.

John C. Plant: Fixes for G T F and.

John C. Plant: I believe that a fixed time on wing issues.

John C. Plant: The increased spend as demand initially from the CFM 56, which is still coming out to us and it's good and then obviously further increases to the leap, which and geared turbofan, which include the time on where your shoes at the well reported.

Operator: Very good. Thank you.

Speaker Change: Okay very good thank you.

Speaker Change: Thank you.

Operator: The next question is from Ken Herbert with RBC Capital Markets. Please go ahead.

Operator: The next question is from Ken Herbert with RBC capital markets. Please go ahead.

Kenneth J. Giacobbe: Yaheg, good morning, everybody. [inaudible] Hey, John, I appreciate all the cover there on the aftermarket you just provided. It sounds like you're seeing as part of that hundred ish million plus in the commercial spares business this year. What's your visibility on that? Beyond this year? Do you think we can make a point assuming Boeing and Airbus start to clean up their act, with Boeing in particular deliveries of new aircraft that, you know, that moderates fairly quickly, or do you get a sense that that could have substantial room to run even beyond this year, just considering increased use of some of the legacy aircraft? I know you went through this, maybe CFM56 Peak is pushed to the right, but how do you view that flowing into your business on the spare side?

Kenneth J. Giacobbe: Yeah, Hi, good morning, everybody.

Speaker Change: Hey, good morning.

Kenneth J. Giacobbe: Hey, John appreciate all the color there on the Hum on the aftermarket you just provided it sounds like you're seeing as part of that 100 ish million Pos in the commercial spares business. This year, what's your visibility on that beyond this year do you do you think we get a point, assuming Boeing and Airbus start to clean up.

Kenneth J. Giacobbe: Boeing in particular deliveries of new aircraft that.

Kenneth J. Giacobbe: You know that moderates fairly quickly or do you get a sense that that could have substantial room to run even beyond this year, just considering increased use of some of the legacy aircrafts. I know you went through maybe CFM 56 peak is pushed to the right, but how do you view that flowing into your business on the spare side.

John C. Plant: I see commercial aerospace sales going up in 25, 26, and 27. It's a bit too difficult to get out beyond that, but I see rising revenues in the spares area during those years.

Kenneth J. Giacobbe: I I see commercial aerospace.

John C. Plant: Sales going up in 'twenty, five 'twenty six 'twenty seven.

John C. Plant: Too difficult to get up beyond that but I see a rising remedies in the space area are doing that as he is I also see increased spares for the F 35.

Operator: I also see increased spares for the F-35, and in the past, I've said I think by the time we get to 2025, we could be seeing spares revenues almost as much as the current OE demand for F35 turbine blades. And then, you know, what happens after that depends upon the rate of production and the rate of usage for the F-35 around the world. Clearly, in recent months, there's been an extraordinary lift, which looks like doing 150 every year for probably the next 10 years.

Operator: And in the past I've said I think last time, we get to 2025.

Operator: It could be seeing spares revenues almost as much as the current OE demand for for F 35 turbine blades.

Operator: And then you know what happens after that it depends upon the rate of production and the rates of usage for the F 35 and around the world clearly in recent months has been an extraordinary list of Ah I will say.

Operator: Time.

Operator: Time in the F 30, fives on the other hand I've also read articles about the plan that we needed to broaden our ability to get that.

Operator: But nevertheless, we.

Operator: We see F 35, spuds being very strong over the next few years.

Operator: I think the aircraft park at the end of last year was just under a thousand aircrafts with an average over a thousand but it will be increasing.

Operator: Assuming the Lockheed didn't have let's call. It about 150 aircraft, a year, which looks like going.

Operator: 150 every year for told me that the next 10 years.

Operator: So by that time, the fleet of F-35s around the world will be very large, and the spares will be extraordinary. And then in between that, let's call it around the 2028 mark, I think we'll see improved turbine componentry to meet the requirements where additional thrust is required to offset the current draw from the weapons systems and avionics that is currently the issue being addressed.

Operator: But so far each time the fleets of F 30, fives around the world will get very large and dispatch will be extraordinary.

Operator: And then in between of that let's call. It in the round 2028, Mark I think we will see our improved to bind componentry.

Operator: To meet the requirements, where additional thrust is required to offset the current draw from the weapons systems and avionics that are is kind of really the issue being addressed.

Myles Alexander Walton: Great. Thank you very much. Thank you.

Speaker Change: Great. Thank you very much.

Speaker Change: Thank you.

Operator: The next question is from Myles Walton with Wolf Research. Please go ahead.

Myles Alexander Walton: The next question is from Myles Walton with Wolfe Research. Please go ahead.

Myles Alexander Walton: Thanks, Good morning.

Myles Alexander Walton: Hey John, on the fastening unit, the commercial aero underlying growth there was pretty outstanding and it was an acceleration. In the last four quarters, I think about a third of that business is distribution. Is the distribution business growing faster than that average? Are they pulling because they see scarcity coming? And also, just to round out, are you feeling better about fastening, eclipsing prior peak margins at this point yet?

Myles Alexander Walton: Hey, John on the passing unit the commercial Aero underlying growth, there was pretty pretty outstanding and the Zip acceleration.

Myles Alexander Walton: And the last four quarters I think about a third of that business is distribution.

Myles Alexander Walton: Is it distribution business growing faster than that average are they pulling because they see scarcity coming.

Myles Alexander Walton: And also just to round out are you feeling better about fastening eclipsing prior peak margins at this point yet.

John C. Plant: and certainly that program that we put in three years ago of creating a separate segment within our fast food business for distribution, a notable success for us, and I'm going to say we've probably seen an almost doubling of that business in the last three years. We don't provide all the makes to everybody and try to manage all the logistics for people, but this is trying to capture that margin previously that we had effectively passed on to other distributors because we distribute those parts, and we mainly focus on those parts which are proprietary with technological moats around them from the Howmet, you know, say, suite of fastener brands.

Speaker Change: So to say.

John C. Plant: Program that we put in three years ago of creating a separate segment within the business for distribution.

John C. Plant: Is.

John C. Plant: A notable success for us.

John C. Plant: And I'm going to say, we've probably seen an almost doubling of that business in the last three years.

John C. Plant: We don't provide like old bikes to everybody and tried to manage it with the logistics of people, but this is trying to capture that margin previously that we had okay. It can be passed on to other distributors because if we distribute this parts and we mainly focus on those parts, which al.

John C. Plant: So that is growing faster than the OE business for us and, therefore, again, that's been another thrust for us in, I'll say, improvement in fastener margins. So far, in any commentary that I've given Myles, I've never been willing to say that we'll achieve 2019 levels of margin rates because I think those were under very different conditions. I mean, there we had the 787 running at 30 or 40 in a month, as an example, and the A350 also at a higher rate. So the I mean, as you know, what we talked about on this call is that those rates are, you know, maybe a third of that.

John C. Plant: Proprietary with technology moats around them.

John C. Plant: From the from the hand, that's a yes, a suite of fastener bronze.

John C. Plant: So that is growing faster than the than the OE business for us and therefore again that's been another trust for all state Ah, Yeah, I'll say improvements in fastener margins.

John C. Plant: So far any commentary that I'd give him bylaw I've never been is willing to say that.

John C. Plant: Achieve 2019 levels of.

John C. Plant: Margin right because I think those are all done.

John C. Plant: Very different conditions, I mean that we had.

John C. Plant: 787 running Oh.

John C. Plant: 14, a month as an example.

John C. Plant: And the eight three a 50 also has a higher rate. So the I mean as you know what with what we talked about on this call is that those rights. All you know it might be a third of that so.

John C. Plant: And so, you know, it's all wrapped up in, you know, our own progression of efficiency, but also what will be the mix of aircraft come 2027? You know, I might be a bit more bullish if you'd guarantee to me that Boeing will be making 14 787s. And I think I read that Airbus is going to make 15 A350s a month. I mean, if that happens...

John C. Plant: It's all wrapped up in.

John C. Plant: Our own progression of efficiency, but also what's the what's the mix of aircrafts come 2027.

John C. Plant: You know it might be a bit more bullish if you will guarantee to me that you know Boeing making 14, 787, and I know I think I read that.

John C. Plant: What's it going to make.

John C. Plant: 15, a month with 850 is I mean, if that happens it's all great.

John C. Plant: It's really good for us. Yeah, no guarantees, and just one clarification. I realize that. That's why I put it that way, you know.

John C. Plant: It's really good for us.

John C. Plant: [noise] guarantees for me John.

John C. Plant: Just one clarification I realize that's why I put it that way you know that's why I tried to not to put my head and not news.

John C. Plant: I'll keep lining it up for you.

John C. Plant: No I'll keep lineup.

John C. Plant: That that knows that stuff sort of stuff, but.

John C. Plant: One clarification, are you saying that the commercial airfoils are now close to 550 million and 24? Is that what the map gets to?

John C. Plant: One clarification or are you, saying that the commercial airfoils are now close to $550 million and 24 is that what the what the math gets there.

John C. Plant: I actually don't think I quoted a number. He's talking about the spares in the commercial now? Yeah, exactly.

Speaker Change: I actually don't think I quoted a number I'm just talking about this the spares on commercial now yeah exactly.

John C. Plant: Yeah, I think it's about right. I'd have to go back to my notes to get a more precise number. I think it's well above the 400 million that we saw in 2019. So I think 550 is probably your best approximation. And Ken can jump in if he wants to correct me on that number. The defense spares for last year were already growing from like 400 to 600, and that's continued. So it's all good on that front.

John C. Plant: Yeah, I think it's about right.

John C. Plant: I'd have to go back to my notes the Guy wants.

John C. Plant: What's a more precise number I think it's well above the 400 million we saw in <unk> and 'twenty 'twenty 2019. So I think 550 is probably the best approximation and Ken can jump in if he wants to correct me on that number.

John C. Plant: The defense spares last year were already grown from like 400 to 600 and that's continued so it's all good on that front.

Speaker Change: Thank you.

John C. Plant: Okay.

Operator: The next question is from Sheila Kahyaoglu with Jefferies. Please go ahead.

John C. Plant: The next question is from Sheila <unk> with Jefferies. Please go ahead.

Sheila Karin Kahyaoglu: Good morning, guys. Thanks, John and Ken.

Sheila Karin Kahyaoglu: Good morning, guys. Thanks, Johnny.

Sheila Karin Kahyaoglu: Hum.

Sheila Karin Kahyaoglu: Can you talk about margin arguably margin.

Sheila Karin Kahyaoglu: That's almost quaint and we don't typically think about you guys, having a different.

John C. Plant: Maybe, can you talk about margins? You raised margins by 100 basis points at the midpoint, and we don't typically think about you guys having a different Economic Value on OE versus SPARES. So you're still hiring to have to flex on matched, to match rates, and so I guess what got better on the profit line and how do you think about that trending throughout the year?

Sheila Karin Kahyaoglu: Economic value on the personal care side, you're still hiring to have to flex unmatched.

John C. Plant: He match rates and so I guess, what got better on the profit line and how do you think about that trending throughout the year.

John C. Plant: Inevitably, if you look at our rate of hiring, and we're also coming off a bigger base of experienced labor, so part of that is improved labor efficiency, Sheila, and notwithstanding the Boeing volatility, I'm hoping we can plan our way around it because the overall revenue would obviously be a different mix and different plants, but hopefully, we can manage our way through to keep that. The overall operating efficiency that we had in Q1, and that's what we've guided to, you can see we've guided to a 24% EBITDA margin. So even though, let's say, we look to see that go down a little bit in the second half, and that's a 28% plus business, and therefore we'll need to work a little harder just to keep it right at 24% in terms of EBITDA But I think it's been one where, you know, nothing ever moves in an absolute straight line, like on a graph you make little steps.

John C. Plant: Well inevitably if you look at our rates of hiring.

John C. Plant: And we're also coming off a bigger base.

John C. Plant: Experienced labor, so part of our as well as improved labor efficiency Sheila.

John C. Plant: Hum.

John C. Plant: Notwithstanding I'll say, the Boeing volatility I'm, hoping we can plan our way around because you know those little revenue was up obviously, we can be a different mix of different plants, but I'm hopefully we could manage our way through.

John C. Plant: To keep that the overall operating efficiency that we've had a in Q1 and that's what we've guided to as you can see we've guided to a 24% EBITA margin, so even though lets say wheels movie.

John C. Plant: We look to see that go down a little bit in the second half and that's a that's a 28% plus business and therefore will need to work harder just to keep it right 24% in terms of our EBITDA margin percentage, which we believe we know we can and will do otherwise we wouldnt have guided the.

John C. Plant: But I think it's been one way you know nothing ever moves in a absolutely straight line on the graph you make little steps. This.

John C. Plant: This quarter, you know, it was a significant step for us. We made, you know, I'll call it a reasonable half step in the second half of last year, and then we saw a lot of the things that we'd been doing come to fruition and achieve that margin rate, you know, assisted by the, I say, step-up in demand. And essentially, we've also been able to achieve a lot of that without taking labor on.

John C. Plant: This quarter it was a significant step for us and we've made no I'll call. It a reasonable half a step in the second half of last year.

John C. Plant: And then we saw a lot of the things that we'd be doing come to come to fruition and achieve that margin rate assisted by the honestly the step up in demand and essentially we've also been able to achieve.

John C. Plant: A lot of that without taking labor on so for example, all of the 400 effectively.

John C. Plant: So, for example, all of the 400 were effectively in our engine business because of the way we see that going forward. And the net, even though we have a net increase in revenue across, you know, fasteners, structures, and wheels, is that essentially, we're a wash in terms of labor. So all of that came out of productivity. And so we think that we're going to be able to maintain that productivity during the second half and then improve ourselves in the engine a bit to offset the revenue volatility that we're going to get, which is basically up in aerospace, up in defense, still net up in commercial, despite the Boeing assumption, but down in commercial wheels.

John C. Plant: In our engine business, because the way, we see that going forward.

John C. Plant: And then that even though we have a net increase in revenue across.

John C. Plant: Fastener structures and wheels, you said, essentially where there's a washington and labor. So all of that came out of productivity.

John C. Plant: And so we think that we're gonna be able to maintain that productivity. During the second half and then improve ourselves an engine a bit to offset the Ah <unk>.

John C. Plant: I'll say that the revenue volatility.

John C. Plant: We're going to get which is basically up in aerospace and defense still nets up in commercial despite the the boating assumption.

John C. Plant: But down in commercial wheels.

John C. Plant: You didn't mention price in that, John. Can you sustain the Q4 net price drop-through, or does it actually get better? [inaudible]

Speaker Change: You Didnt mentioned on pricing that John can you sustain that keep work net price drop through or does it actually get better.

John C. Plant: What I've said previously is that we thought that we were going to be able to essentially hold and match what we did in 2023 into 2024. I think where we are today is that we're absolutely clear that we're going to be able to hold, match and maybe improve a little bit over 2023 levels on that front as well. So again, if you put, I'll say, a fairly reasonable price assumption with a good mix of good spares and then offset the negative from wheels, which has got that high margin rate. That's why we sort of balance it all out and give you the guide we have at a 24% margin.

Speaker Change: What I've said previously is that we.

John C. Plant: We thought that we were going to be able to essentially hold in March what we did in 2023 into 2024.

John C. Plant: I think where we are today is that we're absolutely clear like I said, we were going to be able to hold much and maybe improve a little bit of a 2023 levels.

John C. Plant: On that front as well so again.

John C. Plant: If you put.

John C. Plant: I'll say a fairly.

John C. Plant: Good price assumption with a good mix with good spasm and offset the negative from wheels, We just got that high margin right. That's why we sort of balance it all out gave you. The guide we have a 24% margin.

Speaker Change: Thank you.

Speaker Change: Thank you.

Operator: The next question is from Gautam Khanna with T.D. Cowan. Please go ahead.

John C. Plant: The next question is from Gautam Khanna with TD Cowen. Please go ahead.

Gautam J. Khanna: Hey, thanks, good morning, and great job, Nebby. Thank you.

Gautam J. Khanna: Hey, Thanks, good morning, and great job on him.

Gautam J. Khanna: Yeah.

Gautam J. Khanna: Thank you.

John C. Plant: I had two questions, John. Want a follow-up clarification from what was just asked on just the fungibility of production within your own operations, i.e., if in a quarter or a month, Boeing asks, or GE asks, for a destocked... I'm talking about the subcontract manufacturers to Boeing, just, you know, how able you guys are to respond. It sounds like you're able to just move and navigate from one program to the next.

Gautam J. Khanna: I had two questions John.

John C. Plant: Wanted to follow up clarification from what was just asked on just the fungibility of production.

John C. Plant: Within your your operations I E if in a quarter or a month.

John C. Plant: Boeing asks for GE asks for a destock.

John C. Plant: I'm talking about the subcontract manufacturers to Boeing are just you know how how able you guys are to respond it sounds like you you're able to just move and navigate.

John C. Plant: From one program to the next and so it is pretty fungible and then my second question is just longer term John you've done a great job and I'm just curious what your longer term plans are.

John C. Plant: And so it is pretty fungible. And then my second question is just longer term. John, you've done a great job. I'm just curious what your longer term plans are at the company. I hope you plan to stick around, but just wanted to get you to comment on your future plans.

John C. Plant: At the company I Hope you plan to stick around but just wanted to get you there.

John C. Plant: Opine on.

John C. Plant: Thanks. Okay. Okay. So.

John C. Plant: Bob your future plans.

John C. Plant: Okay.

John C. Plant: So, um... We don't have what I call customer-dedicated plants the more product focus. So we deliver to multiple customers from most of our plants. In the case of fasteners, some are a little bit more wide body, narrow body focused, and so that mix can make a big difference. So if you wind the clock back a year, 18 months when the, I mean, essentially 787 was halted, you could say, well, one a month, but I mean, it wasn't really one a month.

John C. Plant: So.

John C. Plant: We don't have.

John C. Plant: Cool customer dedicated plants are more.

John C. Plant: Perfect focused so we didn't have a multiple customers are for most of our plants.

John C. Plant: In the case of.

John C. Plant: Fasteners somehow a little bit more wide body narrow body are focused and so that mix can make a big difference. So if you wind the clock back.

John C. Plant: A year or 18 months, where they I mean, they essentially seven eight and seven was halted.

John C. Plant: Maybe you could say well one month, but I mean, maybe one a month.

John C. Plant: And I remember, in Q4 of 22, essentially, or Q1 of 23, we were only producing metallic fasteners. That was having a negative effect on us because we had two or three plants which were grossly underloaded because the equipment required to make the fasteners that go in a composite aircraft is different to those on a metallic aircraft. So that was both the, I'll say, an idea in terms of both the mix and also the exposure that we had on plants, and obviously when you've got massive unrecovered fixed costs, that's a problem.

John C. Plant: And I remember I'll say I think Q4, 'twenty, two essentially or Q1 of 'twenty three we are only.

John C. Plant: Introducing metallic cosmos is the that was having a negative effect on us because we had a two or three plants, which were grossly under loaded.

John C. Plant: Because the equipment required to make.

John C. Plant: The first one is going to come to you. The aircraft is different studies, although metallic aircraft. So that was both the I'll say I'm an idea in terms of.

John C. Plant: Both the I'll say the mix and also the exposure that we had on us on plants and obviously when you got massive unrecovered fixed cost that's a problem.

John C. Plant: And obviously, we've been moving through that well, and that's why you've got some part of the margin rate improvement that we have in our faster business, but it's only part of it, as I think you described many other things in it. For the most part, elsewhere, I mean, there are flavors across our engine business, but essentially, again, like our core making facilities lately, they don't really know what type of aircraft they go to It does matter what type of material is used in those cores.

John C. Plant: And obviously, we'd be moving through that well and that's why you've got some some part of the margin rate improvement, but we have it in our in our fastener business, but it's only part of it it sounds like it's got many other things in it.

John C. Plant: For the most part elsewhere I mean, they're all flavors across our engine business pretty Sensually again.

John C. Plant: Like a cool making facility right.

John C. Plant: So really no.

John C. Plant: What type of aircrafts they go through a walk us Blake.

John C. Plant: And therefore, as you, I think, know, core manufacturing has been taking on a quite a different complexion over the last two or three years in terms of the increase in requirements, particularly around ceramic-based cores. So I think that probably deals with that and then, say, the structures of wheels, there's no commentary on that, you know, like a wheel just goes to because we control not only the brand, but we control the design. Consequently, our wheel plants are indifferent to which end market, which trailer or distribution and which customer. So that's a good place to be, not to have custom-dedicated plants, and the most difficult one we manage is narrow to wide, in my fast labors.

John C. Plant: It doesn't matter what type of material are used in those schools.

John C. Plant: And therefore as you I think know is the core manufacturing has been taking on a quite a different complexion.

John C. Plant: The last two or three years in terms of the increase in requirements breaking them out.

John C. Plant: Ceramic based calls.

John C. Plant: So I think that probably deals with that and and then say structures wheels. There's nothing there's no again commentary on that you know like a wheel. It just goes to cause we control not only the brand in body control called the design.

John C. Plant: Is that the wheels times are indifferent to which end markets are which truck trailer old distribution, indeed, which customer.

John C. Plant: So that's a good place to be and not not custom dedicated plants and the most difficult moment manav just narrow to wide.

John C. Plant: Our fastener business.

John C. Plant: The second part of your question was my plans. Well, I can't say I've got any plans, particularly at the moment. You know, I've always said to you, as I serve at the pleasure of the board, I've always been wanting to see how much through, I'll call it, the aerospace recovery, just that we never quite get to the, you know, the good recovery part of it yet. So one day there's going to be a really good time when, as I've talked about in the past, the state of grace, which I said, maybe it'll be the second half of 24, early half of 25.

Speaker Change: Second part of your question was my plants, well I can't say anything about any plans, particularly at the moment.

John C. Plant: I always said to you as I said at the pleasure of the board.

John C. Plant: I've always been one thing too.

John C. Plant: See how not through.

John C. Plant: Oh court the aerospace recovery, just look we never quite get to the get to the right. You know the good recovery part of it yet so one day, there's going to be a really good time, when as Mike talked about and across the state of Grace, which I said, maybe it will get second half of 'twenty four early half 25, and it just didn't happen.

John C. Plant: And it just isn't happening right now. You know, it's, you know. I don't think any of us expected the Alaska Airlines incident and the concomitant effects on production and where we are now. And also now the 787. So things are not smooth. And that's, you know, the case for both Boeing in particular but also Airbus. So, you know, I'm convinced it will get better. And one day, I'll tell you if I have a plan. How's that?

John C. Plant: Right now you know it's.

John C. Plant: You know I don't think any of us expected.

John C. Plant: Yeah, Alaska Airlines incident, and the concomitant.

John C. Plant: Effects on production.

John C. Plant: And where we are now and also now the 77 sort of.

John C. Plant: Things are not smooth and ER and that's been the.

John C. Plant: The case for both Boeing in particular, but also Airbus. So yeah, I'm convinced it will get better.

John C. Plant: One thing I'll tell you if I have a client how's that.

Operator: I appreciate it. Thanks, John.

Speaker Change: I appreciate it thanks John.

Operator: Yeah.

Ronald Jay Epstein: The next question is from Ronald Epstein with Bank of America. Please go ahead.

Operator: The next question is from Ronald Epstein with Bank of America. Please go ahead.

Ronald Jay Epstein: Hey, good morning. Yeah, I hope you're doing well.

Ronald Jay Epstein: Hey, good morning.

Ronald Jay Epstein: Hum.

John C. Plant: A question we get, and we've heard maybe from some of the NGINO-EMS, is that the supply chain needs to make more investment to have the capacity for the upcoming ramp. As you highlighted in your remarks, when Boeing does get back to rate, the number of leaps, it's a huge amount of growth. And one of the areas that they've suggested that investment needs to be made is in tooling. Just curious about your view on that and how you're thinking about CapEx for this potential ramp going forward. Yeah,

Ronald Jay Epstein: I hope you're doing well.

Speaker Change: A question for you.

John C. Plant: And we've heard it maybe from some of the.

John C. Plant: Engine Oems is that the supply chain is to make more investment to have the capacity for the upcoming ramp as you highlighted in your remarks that you know the when when Boeing does get back to rate them.

John C. Plant: Number of of loops.

John C. Plant: It's a huge amount of growth.

John C. Plant: And one of the areas that they've suggested that investment needs to be made as in tooling.

John C. Plant: Curious your view on that and.

John C. Plant: How are you thinking about capex for this potential ramp going forward.

John C. Plant: Yeah.

John C. Plant: So.

John C. Plant: Yeah. [inaudible] What I've said previously, maybe I'll just amplify a little bit today, is that we said we were going to kick up our CapEx and so... If last year was probably just over $200 million, I think the midpoint of our guide now is around $300 million. It could be $290 million, but it's $300 million, give or take, I think, in that region.

Speaker Change: Well, what I've said previously maybe I'll, just amplify a little bit. So today is the we said we were going to kick back capex and so.

John C. Plant: If last year was probably just over 200 million.

John C. Plant: The midpoint to that Guy now is around 300, it could be two nine to 300 give or take I think are in and that are in that region.

John C. Plant: So maybe just a little bit below $300 million. And I think that we're going to spend all of that this year. And, you know, there will be, again, elevated investment requirements in 2025 as well. And essentially, that's because, yes, there's a large increase in aircraft engines. Both, I think, for commercial and for defense, because defense you've also got all the new rotorcraft programs and reengineering of certain things, which I think you heard a bit, we've talked about before, and so you know those investments are absolutely required and so you can assume that the investment is a lot more than the 100 million dollar increase that I talked about and let's assume it's something you know getting closer to the 200 million which if you think about that plus all of the additional facilitation and hiring it's a big bill.

John C. Plant: So it may be just below 300 mm.

John C. Plant: And I think that we're going to spend all of that this year.

John C. Plant: Hum.

John C. Plant: And yeah, there will be an elevated investment requirements in 2025 as well.

John C. Plant: And essentially that's because yes, there's a large increase in a in an aircraft engine.

John C. Plant: Bose I think for a commercial.

John C. Plant: Commercial Haddon for defense. It just depends you've also got only the new road to Grasberg grabbing the reengineering of our certain things go I think you heard us talk about before.

John C. Plant: And so those investments are absolutely required.

John C. Plant: And so you can assume that the investment is a lot more than 100 million dollar increase that I talked about and let's assume it something.

John C. Plant: They are getting closer to the 200 million, which if you think about that plus all of the additional facilities station and hiring it it's a big bill.

John C. Plant: And that was essentially focused on one of the engine companies I talked about last time because of our increased share that we've locked in for the next few years at that company, and hopefully, more to come.

John C. Plant: And ER and that was essentially focused to one of the engine companies I talked about last time.

John C. Plant: Because of our increased share.

John C. Plant: Locked in for the next few years.

John C. Plant: At the company.

John C. Plant: You know, it's a good, strong, solid business. You've seen margin rates improve year after year, and you've seen another step forward this year. And, you know, I think we're trying to hold it now and then maybe we'll make further improvements as we go into next year, but given the demand profile. But at the moment, it's clearly one where there's a willingness to invest because of the, I think, returns in that business. And I think the industry needs them as well.

John C. Plant: And and hopefully more to come.

John C. Plant: Okay. It's a good strong solid business, you'll see margin rates improve year after year and you've seen another step forward. This.

John C. Plant: This year.

John C. Plant: And I think policy, we try to hold it now and then maybe what makes chipotle improvements as we go into next year.

John C. Plant: Given the demand profile, but at the moment is clearly one where there's a willingness to invest because of the I think returns in that business.

John C. Plant: I think the industry needs it as well so that's where we are and.

John C. Plant: So that's where we are on that. And probably a little bit more of a muted investment, for example, in our structures business. So you've heard me talk about titanium, where to answer a question you haven't asked is that we're still increasing production. You've seen that in the revenue numbers. We're taking the share we've talked about and the increments we've talked about as a result of the sanctions on VSMPO. So that's happening. But again, I'm not willing to put fresh capital in the ground for that, given its long duration to come on stream and also the geopolitical risk that I've talked about in the past, because we don't know what's going to happen, not even after what happened after the election this year.

John C. Plant: And probably a little bit more of a mutually investment for example in our structures business. So you've heard me talk about titanium Blair.

John C. Plant: Yeah, two to answer a question you haven't off season here, we still increasing production you've seen that in the revenue numbers. I mean are we taking the share we've talked about in increments, we talked about as a result of the.

John C. Plant: Sanctions on V. S. M P a surplus occurring but again I'm not willing to put fresh capital in the ground for that given it's a long duration to to come on stream and also the geopolitical risks that I talked about in the past because we don't know what's going to happen not even.

John C. Plant: What happens after the election this year.

John C. Plant: Yeah, that makes sense. That makes sense.

Speaker Change: Yeah that makes sense that makes sense. Thank you very much.

Operator: Thank you very much. Thank you. This concludes the question and answer session, and the conference has also now concluded.

Speaker Change: Thank you.

Speaker Change: This concludes the question and answer session and the conference is also now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator: Thank you for attending today's presentation. You may now disconnect.

Operator: [inaudible]

Operator: Yeah.

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Operator: Yeah.

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Operator:

Operator:

Operator:

Operator: Yeah.

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Operator: Uh huh.

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Operator: Okay.

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