The tumultuous ride for Arconic (ARNC -5%) shareholders continues after the company updated its strategy and portfolio review along with fourth quarter results this morning.
On Wednesday, the engineered aluminum products company announced that Chairman John Plant took over the role of Chief Executive Officer, effective immediately. He is expected to serve as CEO for one year, which means the next CEO will be the fifth in as many years.
Former CEO Chip Blankenfein initiated a review of the company's strategy and portfolio one year ago but failed to consummate a deal to sell the company outright. Three weeks ago, shareholders were disappointed when the company announced that it was no longer pursing a sale. Speculation picked up throughout the second half of 2018, but Arconic's Board reportedly rejected an offer from Apollo to take the company private at $22/share.
An update to the company's strategy and portfolio review this morning included restructuring to cut $200 million in costs, an increased share buyback, reduced dividend and a separation into two companies. The biggest news was short on details, however.
Arconic announced that it would separate into 1) Engineered Products & Forgings and 2) Global Rolled Products. The company said it will spin-off one of those businesses and sell any units that do not fit in either of those segments. The company currently consists of three segments: Engineered Products and Solutions (EP&S), Global Rolled Products (GRP) and Transportation and Construction Solutions (TCS). Arconic previously announced plans to sell its Building and Construction unit, which is part of the TCS segment.
The eventual plan has yet to be fully determined. It is highly unusual for a company to announce a spin-off without a decision about which business will remain and which will be spun off.
On the call, management said there was always logic to split up Arconic, but it made sense to allow time for stability after Arconic was formed by spinning off the upstream aluminum business Alcoa (AA) in 2016.
Fourth quarter financial results were fairly strong. Adjusted earnings beat estimates, growing 6% year-over-year. Organic revenue grew 10% compared to 7% in the third quarter.
Arconic said all of its key markets remain healthy, including robust growth in aerospace and defense. Guidance for 2019 was in-line with expectations, calling for 6-8% organic revenue growth with adjusted EPS up 14-21%. Management said the secular growth trend toward lighter aluminum for cars offsets the soft auto outlook for 2019.
Alcoa has an $8.5 billion market cap but nearly $4 billion in net debt and $2 billion in pension liabilities. The stock trades at ~7x EV/EBITDA and ~11x EPS, which is relatively cheap.
The company's latest strategic update leaves investors with a lack of clarity for the time being.