Arconic Inc. (ARNC) shares fell sharply on Monday, Feb. 5, after reporting a net loss of $727 million for the fiscal fourth quarter and downbeat profit guidance.
The maker of engineered products for the aerospace and other industries posted a net loss of $1.51 a share. The loss included $879 million in special items, "principally due to impairments of goodwill in the forgings and extrusions business and assets in the Latin America extrusions business, the impact of U.S. tax reform, and reduction of liabilities for a contingent earn-out and a separation-related guarantee."
Earnings, excluding special items, came in at 31 cents per share, which topped estimates of 25 cents per share. Fourth-quarter revenue of $3.3 billion also beat estimates of $3.09 billion, according to analysts surveyed by FactSet Research Systems Inc. Free cash flow came in at $376 million for the quarter.
For the full year, the New York-based company reported a net loss of $74 million, or 28 cents per share. Adjusted earnings of $1.22 per share surpassed forecasts calling for $1.15 per share. Revenue of $13 billion, up 5% year over year, beat estimates of $12.76 billion.
Arconic shares tumbled 7.25% to $27.00 at 11:45 a.m. EST on Monday. The stock, which is a holding in TheStreet founder Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio, had fallen by as much as 5.9% during premarket trading.
"Despite the headline beat, shares are trading lower as the company's largest segment, engineered products and solutions (EP&S), missed the mark on adjusted Ebitda," Cramer wrote in a Feb. 5 note to AAP subscribers. EP&S Ebitda of $296 million for the period missed estimates of $306 million.
For 2018, Arconic expects full-year earnings in the range of $1.45 to $1.55 per share, with revenue in the range of $13.4 billion to $13.7 billion. The profit guidance is below the FactSet estimate of $1.61 per share. Free cash flow for 2018 is estimated at about $500 million, which is also below forecasts.
"A [free cash flow] shortfall in the fourth quarter coupled with a 2018 FCF outlook below estimates should weigh on the stock," Wells Fargo senior analyst Sam Pearlstein wrote in a Feb. 5 research note.
Chip Blankenship, a General Electric Co. (GE) veteran, became Arconic's Chief Executive in mid-January, an appointment that seems to have appeased Arconic's biggest shareholder, activist investor Elliott Management. While Blankenship has only been on the job for three weeks, he sees the potential for progress.
"In 2017, Arconic made progress on growing revenue and profits and taking out cost," CEO Chip Blankenship said in a statement. "However, a significant opportunity for improvement remains."
"I am convinced that if we stay focused on four priorities -- customers, people, operational excellence and technology -- we will deliver on Arconic's potential," Blankenship continued.
Blankenship initiated a review of Arconic's strategy and portfolio to determine how best to unlock the company's potential. While details were scarce, the company said the review would be complete by year-end.
"We will conduct this review with an eye on the purpose of the company as it relates to synergies available on technology, manufacturing and management focus," Blankenship said during a conference call with analysts. "Primarily, it is a tool to refine our commercial and go-to-market strategies and really look at capital allocation."
In addition to the portfolio review, the company announced a $500 million share repurchase program and will use another $500 million in March 2018 for early retirement of its 5.75% notes due in 2019. Wells Fargo's Pearlstein said that both the portfolio review and repurchase program are a "positive."
-- This story has been updated to include commentary from analysts and the conference call.