(Reuters) - Arconic Inc (ARNC.N) forecast on Monday 2018 profit and free cash flow below Wall Street estimates as the specialty metal-parts maker spends more to ramp up production to meet rising demand for aircraft-engine components.
Shares of the company, which said it was reviewing its businesses, fell as much as 8.6 percent to $26.60.
“On the engine ramp, this is one of the biggest challenges that the aviation community has faced,” Chief Executive Officer Chip Blankenship said on a conference call.
“Whether its engines or otherwise, getting on rate for the narrowbody build rates are higher than ever imagined.”
The company’s major customers, Boeing Co (BA.N) and Airbus SE (AIR.PA), are delivering record number of aircraft as an improving global economy boosts demand for air travel and encourage airlines to order more.
This has piled pressure on suppliers to invest more to match the surge in demand for parts.
“Importantly, the engine ramp still seems challenging for Arconic but execution does not seem to have fallen off entirely, which was our top concern into Q4,” J.P. Morgan analyst Seth Seifman said.
Blankenship, who took the reins on Jan. 15 with support from activist investor Elliott Management, said he was not prepared to comment on the 2019 cash flow goal of $700 million and that investors would have to “wait” till the year-end.
Arconic said its 2018 free cash flow, a measure of how much cash a business generates after accounting for capital expenditures, is expected to be about $500 million, below analysts’ estimate of $534 million, according to Thomson Reuters I/B/E/S.
Arconic said its capital expenditure would increase about 17 percent to $700 million.
Blankenship, a former General Electric (GE.N) veteran, said the company “will look at everything” during the portfolio review without elaborating. The company expects the review to be completed by the year-end.
Arconic said it expects 2018 earnings of $1.45 to $1.55 per share and a tax rate of 27 percent to 29 percent. Analysts on average were expecting earnings of $1.60 per share and a tax rate of 28.4 percent.
Sales rose 10 percent to $3.27 billion in the fourth quarter, ahead of expectation of $3.09 billion.
Excluding one-time items, Arconic earned 31 cents per share, topping analysts’ estimate of 24 cents.
Arconic said it will move out of its New York City headquarters to a more cost-effective location and also announced a share buyback of up to $500 million.
Reporting by Ankit Ajmera in Bengaluru; Editing by Sai Sachin Ravikumar and Sriraj Kalluvila