Arconic Faces MAX-Related Cuts In Sales, Jobs, but Profit Lifts Stock -- WSJ
28 January 2020 - 7:02PM
Dow Jones News
By Bob Tita and Doug Cameron
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (January 28, 2020).
Arconic Inc. said it expected to lose $400 million in sales and
could cut jobs this year as a result of Boeing Co.'s halted
production of the 737 MAX.
However, shares of the supplier rose 5.4% to $30.67 after it
reported a higher profit for its latest quarter.
Chief Executive John Plant said on an investor call that
uncertainty over MAX production is the biggest challenge facing
Arconic in 2020, complicating plans to split the Pittsburgh-based
company into one business focused on aerospace parts and another
focused on aluminum rolling.
Six hundred major MAX suppliers and hundreds of smaller
companies are weighing their ability to bear higher costs during
the suspension and whether to cut expenses by laying off staff who
could be tough to rehire when output resumes.
Boeing is expected to provide an update on its production plans
when it reports earnings Wednesday. The MAX has been grounded since
March after two fatal crashes, and the aerospace company halted its
production this month.
Spirit AeroSystems Holdings Inc., the biggest MAX supplier,
plans to lay off 2,800 staff. Mr. Plant said Arconic is being
cautious with workforce reductions until it has more clarity later
in the year about the duration of the production outage. On Monday,
shares in Spirit fell 2.1% and Boeing fell 2%.
Mr. Plant said Arconic is considering a mix of staff cuts,
extended vacations and changes in shift patterns. While business
for Airbus SE jetliners and military aircraft is strong, he said it
was tough to switch workers to other products.
"If we're clear that production is going to become much more
healthy in 2021, then that's going to affect our views about
labor," he said.
He declined to provide specifics about Arconic's discussions
with Boeing about the production outage and wouldn't say how much
revenue Arconic derives from each new MAX. Jefferies Research
Services recently pegged the amount at $1.7 million a plane.
Many airlines have removed the plane from schedules through at
least early June. United Airlines Holdings Inc. said it didn't plan
to fly the plane this summer.
Arconic said it still expected to complete its break into two
companies by April 1.
The aluminum-rolling business, which will be spun off tax-free
to Arconic shareholders as a new company, will operate as Arconic
Corp. The remaining business lines, which include aerospace
components, forgings, commercial truck wheels and other engineered
products, will operate as Howmet Aerospace Inc. Arconic hasn't said
who will be CEO of Howmet. Veteran company executive Timothy Myers
will be executive of the new Arconic Corp. He has been president of
the rolling business.
Higher operating margins helped Arconic's businesses overcome
weak revenue during the quarter ended Dec. 31. In the aerospace
unit, profit increased 32% from last year as revenue rose 1%. The
rolling business posted a 61% increase in income, offsetting a 5%
reduction in revenue that was partially attributed to lower sales
to the automotive industry as a result of the General Motors Co.
strike in the fall.
For the quarter, Arconic's profit increased 42% to $309 million
from $218 million a year earlier. Excluding one-time items, which
included a tax gain, profit was 53 cents a share. Revenue fell 2%
to $3.4 billion. Analysts expected adjusted earnings of 54 cents a
share and revenue of $3.47 billion.
Write to Bob Tita at robert.tita@wsj.com and Doug Cameron at
doug.cameron@wsj.com
(END) Dow Jones Newswires
January 28, 2020 02:47 ET (07:47 GMT)
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