Kaiser Aluminum (KALU) 23 Jul 202020 Q2 Earnings call transcript

Ladies and gentlemen, thank you for standing by and welcome to the Kaiser Aluminum Second Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your host Melinda Ellsworth. Ma'am you may begin.

you. Thank and earnings Aluminum’s conference everyone first quarter to XXXX half call. welcome afternoon, second Kaiser and Good

If you on have earnings kaiseraluminum.com. release, not seen a visit Investor copy the Relations page our at please website of our

have for call. presentation We the this posted version a of also slide PDF

Officer, Jack Harvey; Neal Joining on Accounting Senior and and Financial Officer, Chairman, Vice and today and Vice Chief Chief Executive Officer are President Huey. me President Chief Operating West; President call and the Hockema; Jennifer Officer, Keith Chief

Before and expectations. we constitute like that contained would by to refer three slides information you first current presentation begin, I that forward-looking made to statements of remind statements the this the our the are and presentation based management in management’s you on

factors refer Annual the to with company’s reports summary for Form cause those the Exchange specific could Securities changes statement from expectations. ended XX-Q materially and to including Form company a any results the the the statements please no in June results company’s and differ of the statements, and Report filed expressed on risk that XX-K earnings release actual duty forward-looking for XXXX to For company's XXXX. undertakes XX, forward-looking and XX, XX, XXXX quarters to March conform the in update ended the to or December year Commission, The

company’s reconciliations for conclusion in items open for rate the we the now are presentation, to Jack? the the in in means in information the to of to In reference discussion Hockema. included questions. like comparable release the the I'd we financial financial At have appendix. our call turn to discussion. call will our Reconciliations Jack addition, excludes provided measures have non-GAAP the EBITDA Any of which included we the non-run most and over EBITDA, adjusted presentation. GAAP today appendix earnings in which

while President recently COO responsibility of for past to July during CEO internal of strong transition candidate Melinda. had together I acknowledging begin process. on confident Keith's developing within the Directors will Keith CEO. Harvey and assume Welcome today. as deep years his respected plan Keith following full as a that CEOs and want multiyear and the our enthusiasm of and of work I through employees and role the planning I met call on ability a company Board industry Keith additional the the since announcement the and the Chairman. a to the strategy leader our new with lead worked and assume today as him on announced on and to us for Thanks as I congratulate continued by am him in XX executive and industry and joining by building company implementing Aluminum remain is growth I today. that positioned as company time down will on to Kaiser and has XX XXXX position. President been of he's management it for planned the customers the focused to highly alike. a I've and as succession step the have operations team highly the the of CEO the Kaiser we is duties Keith respected Executive culture everyone strong

through debt management leverage. the strategic sustaining financial extensive prepared funding being unexpected we and business during as and our call of well the strategy investments our for since and recognizing focuses and and the communicated economic cyclicality through downturns, of engagement adversity. liquidity To provide cycle. liquidity model as ongoing our maximizing end inevitable manage April dividends as the six, We investor slide during on to well full markets expanding business that for is opportunities on predicated then, to economic economy end, Turning earnings our

Following the capitalize in liquidity, on which opportunities. billion April, attractive late net investment capital provides of to approximately a as $X have we as raise completed us well we positioning additional strong safety

key to times less. below maintain seek would our greater clear element to of plan debt at of to initiatives, have strategy, only financial strategic we times de-lever normalized ratio but if than a EBITDA. a a two to to As attractive times or also or fund In two order net we allow leverage two we leverage

allocation to priorities Turning capital are unchanged. slide our seven,

continues top in on expansion. expansion change conditions has demand placed priority Trentwood the hold the for million aerospace been until organic market the to with Our project justify $XXX investment commercial be play

the As efficiency temporarily $X noted organic we to are approximate to sustaining capital while spending only during proactive our implications call, million assess projects of enhance and in we we With liquidity, positioned attractive first curtailed further of investments quarter COVID-XX. position. our be fund funding competitive to critical earnings advance

remains unchanged. Our second our strategy inorganic our investment priority is where

understand, on businesses a long-term value. are complementary our we constantly that at creates are and acquired lookout that portfolio be to acquire that can the that We existing shareholder price to

economic acquisition of opportunities. attractive flexibility opportunities we During and distress, consider are may be to times financial there positioned with

have have is sustain dividend. scenarios for economy. that current Our evaluated COVID-XX ability In scenarios a that third regular long-term the sustainable. We dividend possible quarterly consistently we to and envision, the increase priority dividend confirmed and the is multitude we our our test all we of

repurchases, as excess organic we Our fourth is last curtailed for what March. which required and as liquidity dividends. investments Share deploy inorganic beyond in priority and well repurchases is share

repurchasing In leverage would shares. two de-lever projected we EBITDA, addition if times exceeds normalized seek to before

growth. we are an is Will second who and capitalize the on and quarter when again rebounds. call turn While and our current to we past, compete for market our the long-term emerging state outlook. of profitable business, the stronger positioned positioned we navigated will well the opportunities do believe successfully to results strength development, will better and conditions the the this further for to We've now prospects to so market long-term the Keith review economy are company Keith? COVID-XX confident prospects challenging unwelcome in in

you, Jack. Thank

noted in for our our degrees as Boeing as quarter declined varying aerospace of we temporarily COVID-XX results applications remained. first commercial second applications for defense markets and curtailed each Our and earnings while deliveries, the halted initially during demand Demand reflect quarter Airbus on our call. impact production end of

While in second the general additional their our performance for conditions along quarter. for high the strong. shut our long-term service Demand our were business center customers customers support temporarily as down quarter, helped remained products our the our products pull from customers KaiserSelect with solid many for challenging, create of during engineering

engineering meet virtually of lower impact with for mitigating eroded temporarily general demand aerospace Demand concerns. In the the we other assembly plate, American shipments, lower partially automotive capacity addition shifted North engineering automotive shut second our applications. as due all COVID-XX demand plants significantly general down to during quarter applications to for the for

the manufacturers in facilities restart uneven slower were chain throughout supply resumed operations to Although restarts continued deal with and June, automotive most as issues.

As we leveraged we at by began and operating our cost during experiencing business facilities. flexing quarter, our capacity demand the aggressively lower model

industry generally market flex Although to has actions structure there demand, flexing levels allows a Despite our the the in to held end is reduce variable to and often decline quickly savings, been cycles. lag between us operating highly through response has pricing all as costs appropriately related match and react demand. these cost the

at through in ensure maintain to just continue total approximately most order announced including periods of to allocation recent business will dividends capital economic to unexpected paid we was the liquidity $X quarterly a dividend including adversity. that which With manage our net we be share, tested spending priorities, $X.XX billion, maintain safety will noted, liquidity we our August. recession and sustain capital cycles all of Jack As regular in a

Before level satisfaction I detail. call our I and second over while high to terms quarter employees in to our I spread the work who I now challenging have the over protocols commitment following customer turn the established Neal quarter color will to environment. Neal to results, for very around acknowledge turn and want continuing results to Neal? perform dedication of provide a virus, at this for of discuss safely, thank the the second of more to minimizing we've more to in them very their in call quality delivery. continued

shipments. Airbus shipment, to the declined the quarter quarter demand increase of which value or for in lower as of from noted XXXX partial at $XXX COVID-XX. year Australian suspension the year, reflects pound XX% the lower customer decreased revenue value XX% compared the while reduction added XX% a markets year-over-year due to Aerospace XX% last added slight revenues quarter and per decreased in Boeing added Keith, prior added $XX value Thanks quarter million a XX% by Automotive Keith. approximately reflecting revenue million mix. due past shipment of second Value impact year of decrease second revenues prior a to partially to in reflects aerospace compared second the production predominantly XX%

to automotive impacted solid that related COVID-XX customer per earlier The X% mix. North our As shipments due was mix. significantly while every a General quarter as caused shipments added up pricing America X% reflecting manufacturer pound shipments to in year-over-year product up disruption engineering and operations. in shut reduction primarily temporarily noted value down automotive decline virtually is is during value by revenue added were revenue the

and in second decreased for total and For the X% applications the demand XX% quarter. lower of XXXX, lower first six value approximately revenue reflecting added aerospace months shipments, our automotive

maintenance second the Turning of due overheads in quarter by million million quarter, and to approximately the impact partially demand, sales EBITDA XXXX $XX million reductions $XX offset lower from million for year addition $XX lower other in reflecting slide costs. primarily to XX, declined prior $X in cost to

XX% prevention. with we the quarterly to full XXXX year EBITDA $XX $XX margins unplanned by approximately second downtime the quarter, to half declined quarter compared and second first EBITDA and $XXX,XXX in prior and automotive reflecting to transition. comparable buyers cleaning XX% of cost and due XX.X% to anticipate the due to the margin XXXX EBITDA and shipments XXXX quarter the prevention period, year related and prior half margin During the on in margins prior previously XXXX quarter primarily first approximately of was planned is XX% associated the million XXXX the the and in million for half cost roughly quarter, drag approximately due for the ongoing $X to a period, first we million incurred second of record reasons EBITDA EBITDA driven compared lower lower year first operating discussed. of reduction ranked driven the Trentwood the to the by leverage. bar of of in COVID-XX

and $X -- historical the Reported compared reflecting operating interest for $X.XX non-run for reflecting the XXXX $XX quarter, XX, share. of XXXX million, Reported $X.XX declined $XX of mentioned quarter from was second for prior was with depreciation $X.XX items first $XX of associated million to bond per $X approximately second related demand, million net period. to prior income the rate $X quarter ongoing for increase charges, benefit was $XX severance and and the impact diluted Adjusted $X in million loss The year our $X lower adjusted slide the million in compared Turning Adjusting restructuring rate the $XX year-over-year net our $X recent $XX PCP an in our million operating million. the expense. quarter, reduce or with half with structure non-run clean-up. was million for along reported an million in earnings approximately diluted align bond $XX reflects and operating quarter year was income to quarter lower in increase non-run primarily to million XXXX the second quarter for income rate for operating the million year the cost for operating as offering. cost second to a environmental in the charges. the rate our million second Adjusting of charges loss additional the increase levels items, run income quarter pretax to million second the of previously in the $XX of lower for share and charge issues XXXX income adjusting per for prior million reflects

year First reflects the $XX XXXX half Reported $XX XXXX down from in income the previously decrease was our million half discussed. million million first primarily first million diluted for income $XX in income earnings non-run the per prior share. operating quarter EBITDA of including lot half and compared state the compared net tax adjusted effective tax rate prior for XXXX non-effective or the for year during first rate impacted The items. by for net to decline share to half was per was projected a adjustment XXXX period increase million range for XX% was an first compensation. issues items, was $X.XX half $XX in Adjusting period. $XX rate a Adjusted $X.XX the $X.XX in period. diluted that XXXX. tax to the for to to The for The the effective in due an is and the be mid of executive low valuation of same year discreet

XXXX our million refund to of profits. million the first monetization. a cash cash XXXX $XX for totaled second to Capital half expect related limited to be $XX capital the quarter only of We AMT for second and million $$XX in sustain the quarters spending net tax as we spending approximately

returned form repurchases half $XX in of XXXX, dividend. share of first of the the we and During shareholders million to cash

and In March million senior unsecured million, further capital at liquidity the XXXX. additional pandemic. April, due June reflecting mature XX, At notes a flexibility, approximately our $XXX that issuing X.X% related As the we reminder, we early repurchase in raised. our to to totaled financial strengthened $XXX cash the of uncertainties suspended share

Our over -- earning And our turn revolver back to discuss availability our now, call Keith with revolving to $X $XXX credit million, us providing outlook. was Keith? I'll approximately ample and billion. of liquidity facility the undrawn

you, Thank Neal.

each slide applications year and represent year to anticipate XX% for revenue. two on to large record Combined, of quarter first down approximately these business be results. full from our Turning businesses XXXX approximately aerospace defense of our revenue on to commercial full total XX% XX, our XX% value-added as call, XXXX value-added earnings segments, we we our will noted moving our

by heavily our As down been large is to to first the for continued aerospace commercial volume we has revenue by has weighted and from noted, be commercial of of previously XXX delays dramatically Max. travel expected air to the prior XX% impacted as value-added with aerospace Demand market business half in XX% significantly recertification year XXXX. in the Boeing slowed COVID-XX sales

that and look we we builds recover in aircraft passenger beyond expect subsequent As continue. XXXX, will growth traffic will

to However, noted, demand two four record years Boeing have Airbus as and both be similar could to before to the XXXX. it levels returns

this while in as discussions in third it XXXX too to begin with the early provide will Airbus and Boeing occur and we needs their next outlook in improvements time. optimistic will is expected to We year, shipments are quarter that at specific

during on continue track to defense remained business and Our solid to improve XXXX.

aircraft FXX limited jets program and as on the various the helicopter. legacy such Joint such F-XX We models Strike V-XX all CH-XX are F-XX, not the as well the Fighter, rotary F-XX positioned aircraft including, as the but to Osprey Chinook and fighter program as well

resurgence Turning mentioned to our typical this up the to and meet automotive to all customers remarks, resumed June meet I to demand in In in focus requirements. briefly in facilities slide continue expect our hiatus virtually earlier XX,, operations through operate summer ramped my also response to as have automotive demand. production

program. ramp other XXXX to new of second We in beyond. the and previously begin will for automotive new to awarded In we up contracts these of growth secured half in number continue programs anticipate with addition, and customers will key recently several XXXX drive a and

and anticipate As XXXX rebound XXXX, similar new return second two more half we look XXXX with second to resume. of automotive of quarter quarter applications normal demand launches for operations from first the will to pace as the weak value-added our the to revenue a customers returning we program

supply are supply general half American Turning is bar to longtime to plate suppliers and our of as engineering by Challenged North opportunities impact and slide secure normal material for raw network seasonal part position demand COVID-XX, develop. second many to applications of value-added center and reflect uniquely expected needs. reassuring of lines the the expansive revenue domestic rod on by our developing XX, and in their they strategies shorten weakness. OEMs for partners to products KaiserSelect, their us accelerating service requesting manufacturing capitalize these the

decline and shipments expect more XX, Turning allocate we slide in of as to planned exit rate capacity non-core applications. XXXX, annual extrusion we applications of strategic an $X to to to continue million our

of mid to we the XX% at down the half, summary Turning as first total our we be be second is value-added a expect revenue of to approximately the and half slide look versus and the second of expected will be XXXX, for outlook XX, to from in in half XX% high-strength half. margin down quarter the teens. revenue the second EBITDA to and XXXX value-added Aerospace second

with of to the expect weakness And in normal We seasonal of for first automotive demand the rebound second a pace strong the compared revenue on General with par quarter the as year. we Engineering, value-added the 'XX. in first set in half half expect

anticipates for million third $X the the costs outlook revenue fourth quarter timing of Our projects. the major XXXX of timing second higher approximately half to margin and than value-added due related maintenance weaker quarter sales to EBITDA planned and a of aerospace

spending As only. we previously in April noted, capital projects to began limiting critical sustaining

visibility greater into will end with begin proactive spending. we capital and be to our liquidity, more in However, markets our significant

returned a to of support to capital for anticipate automotive throughout decided million. We spending be efficiencies operations. organic opportunities XXXX now investment our resume $XX approximately enhance to $XX our have spending on will and good full that the We number million further year growth

in inorganic business growth it same as evaluating must and As same will consistent will a a to past. a we've shareholder compatible guidelines. leverage be in acquisitions, long-term defensible winning adhere achieving Employing value we strategy price disciplined with position, be is prior pay potential the our stated capable competitive net and our will and transaction existing understand must we we creating we not numerous liquidity approach we have with only businesses, to it opportunities, discussions, of continue the we filters must safety meet overpay, that in a one around we the feel apply

reflected in our results and environment quarter as markets. our comments XX impacted and flexed to of strategy conditions demand demand, operating of today, lower demand changes a promptly had in business We executed held the we and and Turning responded each to Despite the by our to operator conditions. generally end industry second align as levels. with which well aggressively the our costs in summary pricing COVID-XX with reducing decline on levels to operating has slide

value-added teens. with half resulting quarter mid the new to sustaining expect proactive projects We to be XX% critical, fund hold from more our become support down our other projects, approximately relaxing with second second revenue will EBITDA in earlier margin begin efficiency intend XX% facilities. We and and capital continuing spending capital planned in to while to investments automotive on at programs to

a have business model. solid proven, We

As to Jack ability adversity our all predicated model market well our prepared is being economic flex for execute and noted, upon well and operations manager's experienced unexpected in conditions.

becomes of net I strong taking recovery approximately advantage and to are a of call well billion liquidity our As questions. will the further flexibility providing themselves, opportunities they open present we markets, the as all competitive now the for balance financial positioned XXXX of $X advance clear, for our safety to positioned the key in with position.

question Sullivan Our from Benchmark first instructions] of of Company. line [Operator the comes the Josh

open. is line Your

capacity the with engineering to of the just more Just engineering year generally is volumes aerospace transition of aero over market the the at additional on and general look weaker. are aerospace half there side, potentially the the as there, back we room how Can transition go? much

actually in particular. there we Josh are seeing good a markets some at Well couple pretty demand

as which and semiconductor, second continuing for of course held As opportunities applications the the as opportunity of business has well very year. other in back tooling well and half up strength comes us provide the plate an automotive shows

from one back these to fact and in Trentwood to flexibility 'XX served able capacity the ship versus particular weighs were recall we another. That well in GE meet really may markets in if two aerospace. at able quickly demand [ph] more market has that fairly You we're to capacity ship actually us

the So to and but of to and any relationships are well in of earlier, we we'll those positioned that we mentioned care of those outlook think as we later, we're and take happen seeing we reassuring products XXXX, opportunities remarks second positioned that in course North advantage opportunities some to covered of the those in the will really take and to continue and happen I half have, the think what those. center the American the we're service in beginning get my

to what In semiconductor, out? call reassuring Is verticals other it those it any ones is are efforts?

lot A and that's we're Well is semiconductor that other us but reassuring. of have of what came where seeing resurgence to customers just disrupted by tariffs because the place brought the the in really automotive that was things supply and a had through a and service really continuing taking in on middle we big with quarter. some of to part the that's COVID-XX, that, that been line believe center really of the indicator and supply issues of second lines of drive

others, more we believe more So to as going domestic automotive progresses on focus and that and supply. is

And production go think on, done in? you do they're you do then you’ve good but quest? obviously inning on you a that cost here, think on cost just more what job much can How

Well, us. if was you interesting second it look at quarter, the for

side and all aggressively assembly automotive and on shut in couple on. plant as months the flexed of the we automotive early a down quarter came we the so a those operations First, then of we our percentage back large and on as know we later, early flexed know,

respond that to to flexed again demand. we So

COVID-XX. of these employees So some opportunities markets, than majority more in we actually had due to a to outages bringing of back we we're only back brought the have workforce we those the mentioned, not I that new with participate prior

have probably in and wave, we we're unless So second we automotive. quarter may be third a there the

demand the we second If we the decent so had do have and that you as our flex and quarter warrants. flex there operations on half, meet. had we operations while there, we to demand did With a the so our we room to side, second move in outlook had still fairly good over aerospace in and will some demand some of fairly reflect

in frame on comment any the And up in can times was terms of the just in picking then or just aggressive chain to looked demand? side, to automotive follow-up there it what supply like automotive you how way June? lead it Is on the

Well, have it to back begin quick quick that. that was did and only bring fairly not we to employees was and all the

an to COVID-XX environment. had to but retraining to had safely how get So extensive we work used in we to a retraining that also

fairly returning. a starts to lot and started that their there and as quickly of So the fits mentioned, I end-users were

was sorted So but a July. month, group now we're a in chaotic June through

We have the ramped of like a better outlook what looks we've and up there. so and second accordingly half

for So we and June be it's was strong transition back. there we'll a forward. good hopefully but month see demand us, to We happy as see that go continue

news promising hiatus those of for and other with second launches growth there in had resumption a really The put there planned temporarily we into so see XXXX, is on us. good that side, that been and half continuing on happening the

Thank you.

next comes of Suisse. from of Woodworth question the line Curt Our Credit

open. is line Your

aerospace, that a is in the XQ OEM decent delays somewhat Max. is showing XXX you still fact just the in First continued surprising, saw as question given well on demand production as

know for think is side a plain a the time consumer that how we is what buy meaningful one guess somewhat specifically a the the And driver I it's their aluminum yesterday of Kaiser, I demand into You competitor off have still of material understanding had I decent really that the were close volumes think was Max, platform reported then question XX%. to XQ? hard of very So exactly the has sheet. I we and

thinking how could benefit about forward? to degree terms you the that that eventually in provide potentially which any recovers, So of going you can insight

year the of framers demand with year. first quarter, have a air in place a quarter in quarter lot Certainly, in record throughout of the course again first and second discussion -- the well the the taken we had year the record the

longer required recertification tell began there impact put our may taken the delays concern it while the at and relationships term on them that term. So available with that as the we you we're out, in slow I and the when as also fact have the to extension in on to their Max the end-users can really some there, dialogue a continuing have saw of and the we've resurgence under in needs currently and course of but we come demand pointed being discussions looking these daily there the and shortages strong the with almost COVID-XX they their to was and had lot do I and place down. about back. you XXXX, continue shipments short capacity about be discussions on did

we're we're us play a partners balancing them and that it's with for So short-term it's because long-term. working as between us, the not

So that's why we'll them and XXXX working the see the in shipments partially in half. with it's second for demand on slowing reason per

the air production, They've inventory this in to on to also shifting inventory manage help working the framers also perhaps think chain. out I are slowed that supply later working they've capacities been channel. with us manage

is Kurt very to in challenging I Max, the very on industry well important well managing some there the that working Boeing obviously. regard think Max So in is point pretty conditions. With to the second your

you Max XX% at least that if exist look currently of at their think I that there is backlog backlog.

quite XX,XXX over both and airframe remains that backlog So but there's with of regard or planes robust the very production think particular a lower are the been still levels and which their years eight is still supporting and have know discussion lot that and Airbus with aircraft, we cancellations about well to industry exist at I that of some I roughly with seven and production frankly still backlog rate. Boeing,

think place we get concerns. are these solid we long-term sequential a past business for good all conditions the So COVID-XX once growth this in still in

a I was ongoing what similar product, with asking you’ve major but XX lot and terms outcome products. of and displacing be the then of all Josh back pretty helpful more a in that GE think super question the That's that meaningful to Okay. countries from know aero I type in the a commonality and to of clearly commonality would is there

you? Would how Trentwood you rate So the at GE? feasible. certain utilization not into to much fit to a get to try all or at you Thank go is can could even be also a you that to just willing quantify volume basis target from it spectrum achieve into commodity more really

be not customers very that distributor as a seen in Sure. at supplier facility. aero really becomes believe I would on catalyst Curt, chains that perhaps very shipments, that largest North us for really available our in things that's treated has GE pleased been to the We're lower reassuring take America keeping of heat back domestic and and we've we the actually come from side. to look disruptions us more Trentwood due the of capacity a possible plate and market and supply concern our for volume

call Harvey Thank Sir? you. At the for like Keith turn to over to closing back this time, remarks. I'd

Thank you.

the Aluminum, I and the want leadership over commitment I and Jack our call, stakeholders our Before for his decades. formally two acknowledge end employees to Kaiser to past and thank

role with Aluminum continue of and to remains the Jack. your behalf I has impact and we as to like on with the I say to our to XXth employees company of than and just getting ensure celebrate stakeholders, I you In more on would the Aluminum's Aluminum, us chapter. I'm just built assume you’ve me me more you role CEO our class. said Kaiser Executive has express Kaiser as with in our and company next execute continuing strategy started. In the meant new in the to been Kaiser has note, Jack and thank look will as honored we best we're next Your our mentorship Chair us well into we forward closing, our On Kaiser to Aluminum, to personal strength a here. your XX over profound as to years XXXX can last prepared work move effectively of Kaiser and anniversary and humbled each

the quarter made us With on call updating third that, We thank of You our forward to October. today. for joining real call look XXXX on all Thank you conference to you a on difference us. you.

gentlemen, call. you today's and this for Ladies concludes conference Thank participating.

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