Arconic Tumbles as Earnings Miss Estimates and New CEO Is Named

Updated on
  • Aerospace, auto-parts maker names GE alumnus as new chief
  • Shareholder Elliott expresses confidence in direction

Arconic Inc. tumbled the most since last year’s split from Alcoa Corp. after earnings missed estimates, overshadowing the appointment of a new boss and undermining investor confidence that a tumultuous period is clearing up.

The maker of aeronautic and automotive parts has had a rocky stretch since it separated from Alcoa in November, engaging in a proxy fight with activist shareholder Elliott Management Corp. that led to the departure of the parts maker’s chief executive officer. Arconic also made some of the flammable materials in the cladding of London’s Grenfell Tower, which caught fire in June, killing at least 80 people.

Arconic on Monday named Chip Blankenship as its next CEO, effective Jan. 15. The move won praise from Elliott, the hedge fund led by Paul Singer, which was awarded three board seats earlier this year to end the proxy battle. But investors were less enthusiastic.

Blankenship, a veteran of General Electric Co., is a proven cost cutter but is not “the splashy CEO” name that some investors wanted, said Josh Sullivan, an analyst at Seaport Global Securities. The new chief wasn’t on Monday’s earnings conference call and management was ambiguous about the medium-term outlook for new jet-engine programs amid elevated ramp-up costs, Sullivan said.

Third-quarter profit of 25 cents a share fell short of the 27-cent average of analysts’ estimates, hurt by higher aluminum prices, the New York-based company said Monday in a statement.

Free cash flow was $41 million lower than predicted, Seth Seifman, an analyst at JPMorgan Chase & Co., wrote in a note to investors. “We had expected the company to make more progress in Q3.”

Arconic dropped 10 percent to close at $24.35 in New York, marking the sharpest decline since the shares began trading last November. Arconic had gained 47 percent this year through Oct. 20.

Blankenship, 51, spent more than 20 years at GE in businesses such as aviation and gas turbines. He also ran GE’s home-appliances unit before it was sold in 2016.

‘Hands-On Operator’

“Chip is a talented and hands-on operator who knows Arconic’s core businesses exceedingly well,” Elliott said in a statement. “We have confidence that Chip will deliver the results and returns that Arconic is capable of producing.”

Blankenship, a trained metallurgist, will replace interim CEO David Hess, Arconic said in a separate statement.

Hess took on the CEO role when Klaus Kleinfeld stepped down in April after sending an unauthorized letter to Elliott -- a move that showed poor judgment, according to the board. Hess will continue to serve on the board after handing the reins to Blankenship.

Elliott had recommended Larry Lawson, the former head of Spirit AeroSystems Holdings Inc., as a candidate for CEO. Under the terms of its agreement with Arconic, Elliott provided input but didn’t have veto authority on the CEO pick.

“We preferred someone who has deep experience in the aerospace business,” director Pat Russo, who has been serving as interim chairwoman, said in a telephone interview. Blankenship is “well-known in the industry, highly regarded, with strong leadership skills.”

Big List

In the search for a new leader, Arconic culled an initial list with hundreds of names to about 40 candidates who were vetted more closely, she said.

Blankenship’s target compensation will be $11.6 million for 2018, Arconic said in a filing. He will also get a $650,000 sign-on bonus and one-time equity awards valued at $7 million.

John Plant, an Arconic director since 2016, was appointed chairman, effective immediately. Plant, 64, previously served as CEO of TRW Automotive, a parts maker. Russo will remain on the board.

Third-quarter revenue of $3.24 billion topped expectations of $3.09 billion.

The company bumped up its 2017 sales forecast to a range of $12.6 billion to $12.8 billion. Arconic previously expected $12.3 billion to $12.7 billion, while analysts predicted $12.5 billion, according to the average of estimates compiled by Bloomberg. Arconic reaffirmed its profit outlook.

— With assistance by Alicia Ritcey

    Quotes from this Article
    Before it's here, it's on the Bloomberg Terminal.