Kaiser Aluminum (KALU) 22 Oct 202020 Q3 Earnings call transcript

Welcome to the Third Quarter 2020 Kaiser Aluminum Earnings Conference Call. My name is John, I'll be your operator here for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] And I will now turn the call over to Melinda Ellsworth.

welcome XXXX Aluminum's earnings and first quarter everyone, months nine conference afternoon, to third Kaiser and Good call.

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

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

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

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

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

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

for delivered demand morning, general our Thanks, continued strength everyone. Melinda, results demand automotive in We and and by engineering a applications. solid rebound quarter good defense third and driven and

changes of conditions. aggressively have the with continued market in COVID, align to Following to onset we flex costs

Strong Although sharply employees quarter in we of first strong demand second us at deliver impact earnings reiterate solid of to varying continue applications given execution to by for commercial call. half second the market in in strong very we liquidity the the Total to results dynamics of by our heavily our quarter deal conditions billion. year, dropped enabled third our quarter influenced the continue half with as COVID. challenging the XXXX $X aerospace remained the for third outlook from

capital priorities sustain and guidelines and financial dividend. unchanged our Our allocation remain we our to continue quarterly

comment me markets. end Let on the briefly

the As as earnings commercial slowing reduced we deliveries our as we results significantly our year in aerospace decline anticipated and our aircraft international large with demand result interruptions travel. manufacturers continue reflected second a domestic on commercial air call, quarter to deal half in applications second for of be full would production the noted and

aerospace the to and in facilities During where we capacity and pivot to our high-strength markets cost quickly quarter, lower moved available possible. other focused

with working existing to on our continued we customers addition, In modifications declarations.

relationships capacity the meet to mitigate and partially have in we meet adjusting the parties have both and in market commitments. conditions times lead these short-term for As impact have double-digit offset demand that been continued changing place with long-term and previously has successful noted, decline in many allow strategic The we agreements multi-year to customers, commercial strength we applications. of for with our growth agreed-upon in year-over-year in defense applications our demand aerospace,

Turning to automotive.

through expected first to quarter to recently and in These and programs growth new mirror the beyond. awarded launches strong XXXX As third other we revenue expected, bounced our our resumed. drive program strongly and automotive extrusion value-added as are resulting results quarter launches continue shipments to back

these automotive our automotive-focused we With virtually facilities. furloughed in recalled have employees increases expected in demand, all

We to investments. longer-term minimal growth expected applications additional for with these manage the are well-positioned

engineering the remain general in business Our continues to strong demand seasonal normal half. second despite weakness

KaiserSelect semiconductor drove for third center and continued and our market service in applications end the products automotive strength quarter demand Solid results.

I mentioned levels. earlier, how enabled and managed the employees these continued with meet As end to as aggressively during lead our our quarter, our addressed Pricing our to pivot demand I meet capacity different better changing in adjustments demand ability dynamics to has general for in plate spending times the engineering industry for responded stable with aerospace the am remain to of customers. given demand applications the improve applications to each to us markets. the for operating cost pleased quarter, and

down aerospace meet and we opposite ramping our automotive demand, Despite were demand. to to to manner. high-strength cost structure the our general demand, in demand the serving changing with aerospace an and our our with commercial efficient engineering those improving flex results facilities challenge was our reflect ability facilities in where effective to align were these up in occurring lower managing operations and for ramping markets, significant in variable levels swings While

increased margin improvement As incremental business leverage will will levels as cost improve, increases. drive operating we lag expect volume

facilities, manner the strong employees achieving the record achieving extremely doing these In I'm they're work addition results. which performance. managing to in of they're the proud and of the COVID aggressively are and virus our safety impact our execution in also

supply now slow on XXX the delays of Destocking outbreaks in with MAX, driven to recertification Turning on commercial our to applications, longer-than-expected recovery temporary COVID-XX travel third quarter. also production We large slide aero air slower in business aerospace the and number late dealt early second recovery quarter supply see international due and destocking and in for manufacturers the chain. by continued outlook a high-strength domestic jet chain X. as and in occurred

XX% XXXX remains value-added expected full for and continue year-over-year XX% down record for anticipate will the commercial outlook for Demand XX% we year reassess versus be is applications, into to these the aerospace our to anticipated. XXXX. XX% strong now defense previously As we to approximately applications our from revenue year

with to rate for revenue for in value-added projected Strong currently automotive are American our number to Moving approximately shipments strong to XXXX fourth North rates vehicles slide similar to XX.X to a quarter million vehicle the and XX% XX.X is Build production X. vehicles expected third increase quarter, continue demand results. extrusions in XXXX. from our in million over

consumer demand. we trucks aluminum addition, expect In vehicles and continued growth extrusion as content light in towards preference drive larger

demand to weakness. slide for continued We strength despite Moving general seasonal on half our demand X. normal in second applications engineering number see

the continue OEMs to strong addition and see In emerging to reestablishing for end market demand, supply we chains. trend service center domestic

and outlook bar on rod long-term position uniquely they On KaiserSelect plate opportunities a continue as XX service develop. us capitalize partnerships number to review center our slide summary. our products Our of and these and to

lower to XX% in Looking anticipate earnings rate, applications, be for the for expected revenue sales, we XX% from mid-teens. the total year, the our defense, value-added in second call. margin balance of down second XXXX, some at by with our EBITDA aerospace half in outlook quarter automotive strength second and the the on will We continued to reiterate demand by approximately second offset as quarter of the half and communicated be driven high-strength general engineering

to operations functions to costs our align and improve. reduced leverage will support levels provide in in that the have with across organization levels operating as We significant demand continue business

spending for our As quarter we addition to earnings our automotive spending projects, organic support sustaining resumed for further enhance investment capital call, in other opportunities growth efficiencies critical second discussed and throughout in to operations.

turn detail. We the now in to the call the more expect full in Neal $XX million to million. approximately Neal? I'll continue capital $XX to discuss quarter spending to for be year will over third

decline Keith, on primarily morning, Thanks, everyone. XX% Value-added or lower shipments, prior levels value-added revenue and million XX% driven third high-strength $XX in in on in $XX the declined aerospace experienced in quarter revenue year a of strong prior the XXXX quarter. compared $XXX a by approximately decline the million to demand. year quarter of demand decreased compared shipments to XX% XX% good million Aerospace

customers' in that the launches ramp third of General to supply chain approximately new engineering the to XXXX second shipments, as reflecting X% a quarter shutdown. million half, auto strong, a reflected compared $XX the experienced weaknesses demand million the favorable pricing in reflecting of and the continue significant began on reduction a defense X% program value-added to increase COVID-XX quarter in second COVID-related million revenue recognition X% aerospace Automotive mix of modifications product drove contracts. to impact volumes, additional revenue the declarations commercial multi-year Value-added to demand lower $XX third demand in approximately in X% the increased of production seasonal annual to of remain shipments, on normally While revenue revenue following XXXX applications approximately for value-added related XXXX remain stable. while up under on returned XXXX quarter the impact decline shipments. related $XX declined

total shipments. million For decreased value-added lower revenue the $XXX or XXXX, first X million of months XX% XX% of on $XX

XXXX, XXXX record aerospace pandemic and impact period. in our decline the a prior high-strength drove compared the majority the Following to of applications quarter first of year the

further addition, shipments our our other revenue planned of and year-over-year. automotive exits quarter applications non-strategic value-added other In second impacted the impact of applications and

in $XX the Slide to to XX% VAR margin the period, million year the results margin noted the Turning majority $XX months discussed. was lower and to XXXX approximately period, quarter as for of million as third the year XXXX of inclusive XX% lower XXXX first flexed compared prior driven million $XXX in quarter EBITDA X with reflecting was with compared total previously million year in of the demand. and months operating compared Adjusted XX. XX% third XXXX declined prior costs for the the prior X approximately the by XX% first the to to other year of compared $XX of period. leverage. impact EBITDA quarter million sales the to prior of and the of decreased $XX due impact EBITDA for quarter, previously EBITDA third

quarter XX. quarter approximately the million million $X in income Slide to for million to was compared XXXX non-run-rate Reported for the $XX $XX $XX operating third for Adjusting of charges, prior operating third the million. quarter. income was year Turning

or increase decrease the higher a charges The income decline for quarter. The million share issues XXXX to million per income quarter in in per third period. in million quarter approximately for $X of with Trentwood at net associated the primarily The Reported $X operating net for year of the prior the $X.XX $X.XX the and for facility. income our for historical a for $X.XX was income XXXX. discussed first diluted Adjusting the diluted previously quarter to first year for non-run-rate cleanup non-run-rate increase a ongoing share. first by share XXXX items, was or environmental $XXX,XXX The third cleanup quarter reflects adjusted tax reserve reflects million XXXX for primarily reported compared the million -- PCB net X for diluted reflect was $X $X prior million items, million XXXX prior in nine and million discrete of period. $XX third $XX to per as X rate million The net effective the during months $X.XX for the environmental non-run-rate income operating Reported charges, in the earnings second Reported million million, $XX costs expense. of $X.XX diluted million charge to increase of reflected Adjusting was quarter period. net impact months $XX depreciation $XX and ongoing related the year interest in for for and the lower operating income severance increases bond million prior per compared offering. in from restructuring Adjusting $XX pre-tax issues from million. of benefit third of in was the non-run-rate $XX impacted $XXX $X.XX months the first reserve recent period. an the share. charges to was primarily earnings Adjusted million million declined $XX income, in year quarter Adjusted approximately total was income compared of for year-to-date income $X projects. XXXX X in the EBITDA non-run-rate of operating of adjusted, $XX $X our down months

tax the still effective and be is full of compensation. NOLs, mid-XX% XXXX the valuations low the for non-deductibility to range, year due state executive in to for rate to primarily an adjustment in tax However, projected increase

first totaled capital a million year spending in of tax million XXXX expect and to to monetization. related spending We million expected refund Capital net the be of cash quarter cash months million, AMT is the $XX for $XX XXXX. as previously $XX third $X million to Keith $XX be our noted. to X Full

million. total XXXX, cash X approximately was of shareholders During return months the to first $XX

quarterly on our equivalents billion, credit announced recently cash million. of XXth cash was on facility paid million we dividend and on of comprised approximately and addition, of XX. of September that liquidity In availability share be $XXX $X $X.XX our revolving November will Total borrowing per $XXX undrawn cash

Now I'll turn for Keith closing comments. back Keith? call to the over

on Thanks, XX. despite a and by Neal. demand driven We flexed results changes the for of number market applications ongoing align to capacity in in and Summarizing the reallocated our delivered aggressively automotive quarter pandemic, the and defense continued and slide remarks cost impact strength we engineering in strong third conditions. solid demand general have rebound with our

billion. in total to for down XXXX the Total quarter second of half mid-teens. revenue approximately strong EBITDA value-added rate second We XX% continue the compared will the remains to to be liquidity with run $X margin anticipate at XX%

financial guidelines unchanged. and priorities allocation capital Our remain our

market further growth. on navigate our capitalize for prospects conditions are challenging and strengthen long-term to We profitable continue to well-positioned opportunities to

XXXX We call for fourth be February, will believe earnings. our next on earnings during quarter will but provide that more the our we outlook XXXX color trough

our philosophy ourselves to relations, safety with come solid additional the multi-year net we nature to Our conditions, our of sheet to in to balance been that navigate I'll now challenging that, us serve. for broad markets provide very cyclical a product business always way. strong opportunities, agreements, open which manage call period and navigate levers may a on place which allows capitalize customer questions. With We're this and market offering, through have has confident our the strong we the end through that prepare our through the highly

[Operator Instructions] from question Our Credit from is Woodworth Curt Suisse. first

customer any too you year early guidance, just in a little rate? itself continued comment a kind it were cuts will a or next but could view work not on respect another surprising, build early was inventory it's nominations, next Did aerospace maybe bit cadence least the there little function you And the the to certification how MAX drove year destocking? what totally about do know can the bit With X change? out? think to to but you have further which more -- I of Is of delayed. said quarters terms of of market in at the into on take of destock, the look sense the arguably of part the

to rapidly we quarter. saw looking large end the framers sort orders of of the at In reduce market, air second begin Sure. the after the

And perspective, they a on. so stopped destocking from early

think that of shorten we length destocking will we that, experienced. a typical so that And the period

we measuring As that relates as -- strength we're still looking at the return XXXX to -- and that return time we're the in saw period. the

back as We that level. X going that, at end to take continue to get customers to X this that's believe, to time well as to record years about XXXX our

forth. years over mean than perhaps so doesn't the recovery sooner see or we couple that Now that hopefully gradual next won't start later happening a but of X a year or

things And as to more fast drive we on demand. discussion for public this things how past that's one points obviously, that back comfortable I MAX. we're is the going that think will to us going that in And that monitoring continue for come fast those very on. travel. start visibility we're ultimately waiting to involved. So with to then give discussions back. start returning recertification as are we're happen that think hurdle earlier We We're of we'll When will That's things with be our waiting The going mentioned this. we're looking to These all to how things recover. closely. to will to I be progress, little continue get get think the to

years, time are have us we those with safety ended, which recovery that how more that period over those a and going to with has back we're how as looks the we're with mentioned, pleased to the we And agreements world very when to large place. the net give on airframes. navigate destocking regard looking with multi-year until with sales strong few in we're we at next Now think

Okay. a countries. centers is the now XX or seen on heard the respect success, That little market ahead anti-dumping of to buying some at with you the characterize pretty starting service We for Have common with And in clearly, bit general shift that it. makes in that? more? to strong the respect then get would recover had pricing of any had kind market And alloy behavior outcome [drill], some least prebuy a in of you to industrial broader now? Or engaged to how sense. right

Yes.

activity there, we're engineering raise that's tends their of that to and starting helping That the and seeing. with pricing managing with specifically come what with and that markets I up overall all some industry with really in seeing stronger the general think we're outlined to strong markets the that other boats. other demand I think capacity that conditions availability, with I the

more you recession, typical so back hopefully, And some stability the to of to other begin markets, fronts. the this to go 'XX, reign And typically, happen. here challenges if strong in that price of of in all to going some than -- 'XX key occurrence we some period, continue on see with we're on the degradation pricing saw the hopefully, the

boats, activity all So add is raising Curt.

have it's about future But one a this And of in to great. like sheet. And terms of then talk now. just little bit the one. Okay, final kind incredible for maybe difficult Kaiser, balance you the

could years? secular but look perspective, next the the more quality there's have how are to believe, on you some are maybe going You to of in vision kind X the M&A any Do not sale. X market portfolio mean I of available have looking now, in decent year From I next you for of active? assets the pretty for things in of to lot market. respect become assets that the a couple optionality interesting an with a

can have as What it. the ability growth to continue able filter we've long with is the capital our as on first. to always conditions, stated strategy. our always if We a that stated, it we on got understand, the should position. We've can strong it's as we've culture. first current that's focused shareholder additive inorganic mentioned something that provide our we be That pull preferred be But that a -- if something that it's to as list to trigger. we react call we're we and fits guidelines certain stay organic comes as a environment. disciplined leverage along and able something position times, good, many in defensible, and the you value we're Well, to And matches business long-term approach. understand the buyer. allocation And that in but within we're liability If and guidelines, to our going remain find

we long as a able we're can along. filters, come in as place one good they be to those boxes do those So on check if of to the

The from Company. Our question Benchmark from Sullivan is next Josh

you understand remarks? maybe that talk modifications the modifications? what those little conversations parameters conversations? Can of the conversation of some with in about those customers, the pricing us a you just about the Can aerospace with just you of and you Is around mentioned part help bit had those you're prepared talking some timelines

it's can't of It's without provisions in the really margin product be met, volume, of have provisions things. those listen, a And we mix, recovery. do. it But many determined agreements, Well, which vows our creates obligation. Sure. our a wouldn't cost contractual of when if number for place protection, getting contracts into

those obligation several the Neal determined detail was at that the meet and the would that too. During provisions triggered was not and recorded, the spoke it contract that in of quarter,

because cyclical approach really such, has that hasn't as we We've we the perspective, think Kaiser you that's demonstrated So Aluminum through we always the -- in from a if even though market been approach. market. things understanding aerospace it markets, how stated always a

so we those plan downturns. And always for

approach long-term place those those of XXXX. many that reflects in in see multi-years in Our you happened again, are same our for can trigger to to And agreements place. with are philosophy, and customers. that agreements It for

the be I could mean reason this that at in that and... low point was do any it think is or 'XX there you point to triggered think XXXX

a these certain there time. our gives to But is great comfort a being what to position in that a with safety future question, at this understanding net that necessarily agreements It's conditions. is at answer Josh. in understand what looks Not us able like

those. we're return has quicker worse, heavier And the so able the been were communicated will If we're on those or pull pull what get able hopefully market than and anticipated to markets to to to date. on

any Got then the it. confidence engineering, to on over reshoring of general driving What you us that impact? just And granular that reshoring some switching can really detail is gives give strength? products you

to looking meet with really the that demand up. position here I and provide the with programs and had to the happen that the positions capacity chain perhaps of can but seeing lot availability to our in lead supporting some pretty hot products heard have a lot resonates. our a look obviously, And seeing, as space a you supply areas; this In had spanned don't we're those key half A think days our lot shore overall more able and is for of a we're and move the come supply supply at in the pretty That of a just And long-term time. that gotten lines then and very and lead good of water. lot about. of last some a really key. lead of time lot, product in the we're is in there resonates a to at of earnings that automotive, we that. good Well, offer, we folks -- was talk have, just that available chain disruption that capacity disruption over back semiconductor perhaps there. talked and is help very supply in -- munitions, the call, product we're These they a imports times markets oceans security all things of these chain. one, We lot direction. that We And condition

We've that strongly I date that's good agreements. we others some talk to about So to long-term going and wins continue 'XX. had area into in to continue think to really

one just these the be more little going then And to do a broad-based? through you of more new think are that you're strength on a product think you coming I automotive or into on do large couple XXXX. it's mean, launches focused

Josh. broad pretty It's for us,

multiple executing have that We launches year. this are

-- year. and We in and me, year I really the implemented a next this for actually recipients have were a new stated last number which in we the excuse of awards, of launches becoming also implemented, call, new were couple nice implemented contracts, are being planned of third quarter.

So we're seeing these anticipated for good place significant a long to in millions millions -- We've expectation for had move activity quarter right albeit a the second and We for COVID-related. now. and put markets this really We've recovery, time. for off.

the getting and third year. that And hotter just been we we as see first has for very have would expected. strong, The just next quarter

So from our offering. of the across all opportunities it's we're automotive and a on the for a really on perspective good lot outlook products programs spectrum new

Curt from Woodworth Credit Suisse. have again question we from a And

Yes, hi.

on Josh's follow-up to wanted Just question.

of maturation? pretty the you the bidding extrusions XXXX? timing secular secular three products trend in around comfortable in pretty you Is redesign that generally on of a and point or the for the of I we're feel closer to into platform, think still activity taking that think you momentum ahead -- the say those typically XXXX, do aluminum Would you've and that that. still Within market good getting has light-weighting of share, would terms that four trend got given aluminum to visibility of new years sort taking

some When two years four it's very three years, good. quote programs, these or on or think out we I we're of cases on No, some in three generally platforms.

we've the in businesses light-weighted increasing for no in that extrusions. out So demand that we're and on timeframe, fall-off quoting are aluminum seen

thing we're this and be well-positioned to it. -- advantage to that's continuing legs of think take very we So has

no over And remarks. further I have Keith Harvey time. closing we it to for questions will back this at turn

thank Well, updating day. good very for joining during you us call much on forward We a quarter today. conference call our fourth in February. the to Have XXXX you Alright. look

today's and disconnect. for That and participating, ladies call. gentlemen. you you concludes now Thank may you, Thank