Howmet Aerospace Inc. HWM is benefiting from solid momentum in its commercial aerospace market. The continued strength in air travel, with wide-body aircraft demand picking up, has been supporting OEM spending. Pickup in air travel has been positive for the company as the increased usage of aircraft spurs spending on parts and products that it provides. Solid demand for air travel is also encouraging airlines to purchase more aircraft, which is again driving its sales.

While the commercial aerospace market has remained the major driver for the company, the defense side of the industry has also been witnessing positive momentum, cushioned by steady government support. The company has been witnessing robust orders for engine spares for the F-35 program and spares and new builds for legacy fighters. Driven by strength across its business, HWM’s revenues increased 14% year over year to $1.88 billion in the second quarter of 2024.

Howmet’s sound liquidity position allows it to reward shareholders with dividend payouts and share repurchases. Exiting the second quarter, its cash equivalents and receivables were $1.52 billion against short-term maturities of $782 million. It generated a healthy free cash flow of $437 million in the first half of the year.

In the first six months of 2024, it paid out dividends worth $42 million and repurchased shares for $210 million. In July 2024, HWM hiked its dividend by 60% to 8 cents per share (annually: 32 cents). In the same month, the company’s board also approved an increase in its share repurchase program by $2 billion to $2.487 billion of its common stock.

HWM Stock’s Price Performance

Image Source: Zacks Investment Research

In the past three months, this Zacks Rank #3 (Hold) company has gained 26.1% compared with the industry’s 4.8% growth.

However, HWM has been witnessing weakness in the commercial transportation market. In the second quarter, revenues from the commercial transportation market declined 4% on a year-over-year basis. The company expects demand in the commercial transportation markets served by the Forged Wheels segment to decline in the second half of 2024 across most of the end markets due to lower OEM builds.

The company is also grappling with rising costs and expenses. In 2023, its cost of goods sold jumped 16.3% year over year while selling, general, administrative and other expenses also increased 15.6%. The trend continued in the first half of 2024, with the cost of goods sold increasing 9.2% to $2.6 billion. Selling, general, administrative and other expenses also increased 13.5% to $185 million in the first half of the year, primarily due to an increase in employment costs.