(Reuters) - Arconic Inc (ARNC.N) is selling its construction business after a months-long review of its operations, the diversified aluminum products company said on Tuesday, seeking to sharpen focus on its fast-growing aircraft parts business.
As planemakers ramp up production to satisfy growing global demand for air travel, Pittsburgh-based Arconic is paying more attention to aircraft parts. Several parts suppliers are increasing hiring and capital expenditure to meet delivery targets.
Higher sales of aircraft parts also helped Arconic report stronger-than-expected overall earnings for the second quarter. The company’s stock rose nearly 4 percent on Tuesday morning.
The plan to sell Arconic’s building and construction systems division - which makes facades, windows and framing products - follows reports last week that the company was looking at takeover approaches from private-equity groups.
It is also the result of a strategic review launched by Chip Blankenship, who took over as CEO in January after Arconic’s former chief resigned under pressure from activist investor Elliott Management.
Arconic said it would also spend over $100 million to expand operations in Michigan and Tennessee to meet higher demand for aircraft-engine components.
Major planemakers Boeing and Airbus want to boost production of the 737-MAX and A320neo jets but currently lack the required jet engine capacity, said Seaport Global analyst Josh Sullivan said.
“Arconic’s investment would likely be to help address those bottlenecks,” he said, adding that if aircraft makers announce production increases, other suppliers will follow suit.
Aluminum prices MAL3, a critical input cost for Arconic, have risen 9.2 percent to $2,094 in the last 12 months. The company expects a price of $2,720 per metric ton of aluminum for the rest of 2018.
Higher aluminum prices lowered Arconic’s operating income by $20 million in the second quarter, Chief Financial Officer Kenneth Giacobbe said on a conference call with analysts.
Sales across Arconic’s three major businesses - transportation and construction, engineered products and global rolled products - increased between 7.5 percent and 14 percent.
Total sales rose 9.6 percent to $3.57 billion, topping Wall Street’s average estimate of $3.49 billion, according to Thomson Reuters I/B/E/S.
Excluding one-time items, Arconic earned 37 cents per share, exceeding analysts’ estimates of 29 cents, according to Thomson Reuters I/B/E/S.
The company maintained its 2018 forecast for revenue of $13.7 billion to $14 billion and adjusted earnings of $1.17 to $1.27 per share.
Reporting by Sanjana Shivdas in Bengaluru; Editing by Saumyadeb Chakrabarty and Anil D'Silva