What happened
Shares of Arconic (ARNC) fell more than 10% on Tuesday after the aluminum products manufacturer reported an unexpected loss. The shortfall was primarily due to pension-related charges, but on what began as an ugly day on Wall Street, investors were in no mood for negative surprises.
So what
Arconic before markets opened reported a fourth-quarter loss of $0.59 per share, compared to a consensus estimate for a $0.32 profit, on revenue that at $1.5 billion was slightly ahead of the $1.46 billion estimate. The company recorded a net loss of $64 million in the quarter, including a noncash after-tax charge of $108 million related to a partial annuitization of U.S. pension obligations.
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The annuitization should pay off in the long run, reducing the company's U.S. pension obligation by about $240 million and likely saving about $5 million in annual administration costs. But Arconic warned it intends further actions in the first half of 2021, which will result in more charges and further muddy the financials.
"Our fourth quarter results demonstrate a steady climb in revenue since the onset of the pandemic as several indicators point to growing customer demand in many of the markets we serve, particularly in the ground transportation and industrial sectors," CEO Tim Myers said in a statement.
Now what
Arconic expects to generate 2021 revenue of between $6.6 billion and $6.9 billion, above the consensus $6.46 billion estimate. Free cash flow is expected to come in between negative and positive $50 million, not including any impact of future annuitizations but including about $350 million in legacy pension, environmental, and other liabilities.
Myers said he expects to use 2021 to "continue optimizing our capacity utilization to align with market demand and broader macroeconomic conditions."
It's been a strange journey for Arconic in recent years, highlighted with a split from Alcoa in 2016 and the spin off of Howmet Aerospace last April. What remains is more focused and set up well to be a long-term performer, but the stock even after Tuesday's fall is still up more than 200% since the April separation of Howmet.
The results and outlook were not bad, but given the gains it appears some investors decided to book their gains after a choppy quarter.