Kaiser Aluminum (KALU) 1 May 212021 Q1 Earnings call transcript

Welcome to the First Quarter 2021 Earnings Conference Call. My name is Vanessa and I will be your operator 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] I will now turn the call over to Melinda Ellsworth.

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

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

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

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

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

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

Appendix. outside have because and/or Reconciliations are such presentation. to which measures are not turn to adjusted included would without provided the in At now to the measures earnings Keith in forward-looking Any required in we will the reference be the like certain of our presentation, in the comparable call are of provided measures our for we Appendix our call comparable items for discussion. questions. open certain included EBITDA, discussion of to information addition, non-GAAP financial financial items non-GAAP Keith? predicted most the EBITDA release company's today for cannot non-run-rate in over In financial Reconciliations we've provided the I which control effort. to reconciliations conclusion reconciliations reasonably GAAP GAAP the unreasonable means of Harvey. the excludes financial or and

welcome Aluminum's Kaiser earnings team normalize. began first end XXXX. quarter conditions Melinda, first as impacting Thanks, All quarter improve call. to markets our markets pandemic-related The strong the another our sequentially in to results and XXXX XXXX to delivered continued through second from major quarter Kaiser half everyone

by adding aluminum We also significant reached in Mill successfully portfolio the packaging company growing the a of Warrick markets. in acquisition the market of XX attractive on end to served Alcoa, evolution from Indiana milestone the Rolling our the March completing Evansville, of

I'll American to now markets. markets, later to With our strong full position additional outlook the end significant and automotive in the which addition and in call. of the high-strength XXXX of our can general Warrick, year in the position industrial highly North with outlook complements beverage a and we'll our consolidated have aerospace color addition food add Warrick

results value-added first million, with not include approximately $XXX reflect adjusted remind million which results. you of XXXX EBITDA quarter revenue improving Warrick $XX Our I did of

have demand, through expected, XXXX. to expect expected levels demand Auto continued related and and defense-related stabilized appears recovery the multiple airframe each our when of in on programs. to expected in improve high-strength Demand large for to similar markets growth experienced XXXX-XXXX to as revenue with and demand value-added launched we in time period with robust business improvement through general continue of saw we successfully commercial our improve with and is and new to is year in jet earlier, businesses mentioned As to the production our programs products Aerospace quarter. automotive-focused underway. balance continuing with served the engineering double-digit the

which shortage, programs experienced to in publicized. delays has have mainly due chip the slight been some We well

in expected of experienced the year a potentially interruptions the impact year, production could recoverable automotive year to of the half see first be slight second full we shortages While to we half value-added in the anticipate if continue. revenue

customers going a continue as from restocking to of general are and extend. through are strong times lead we demand, period Our engineering mills experiencing

for strong expect mills We planned, which fixed increased operating quarter I'll we year. to costs on products the a improving end second our turn general period. our over the improving. engineering American rod demand, slow overhead gives have this during impacted the Manufacturing provide with throughput market continued our efficiencies strong in more center the as and back mills. have are general products which favorably XX-year to to been for Overall, March, engineering to now by robust. in other their strong high for very XXXX, plate as demand Demand driven our North quarter. demand detail remains first soft also alloy application of Neal half on And the into results. you for continued service reduced results shipments and Neal? experienced our record our call insight semiconductor demand bar and products some add

everyone. and good Keith, morning, Thanks,

for our driven reflecting XXXX. for to volume cost increased EBITDA XX% the the of second run with to or XXXX half rate, general in first in value-added each improvements $X compared in compared XXXX million demonstrating costs $XX half revenue of our end by million aligned Slide revenue during the quarter $XX demand operations second more value-added million as structure Turning X, continued of to run and we aggressively defense Adjusted automotive, fully markets, million flex of strength and engineering, higher rate, XXXX applications. $XXX increased a

EBITDA compared BITDA the quarter impact applications. the part Comparing quarter, XX.X% value-added quarter results in the in quarter impact strength XXXX, volumes. of reflecting declined million first offset sales automotive reflecting strong year-over-year first and approximately to $XX costs. in the first lower reflecting overhead stronger by negative increasing by declined of our for the first engineering XX%, manufacturing million of and demand of our the Adjusted continued on for demand a general $XX prior-year our million, partially leverage to quarter commercial COVID-XX-related solid strong XXXX for reported corporate and operating applications by XXXX defense-related the mitigated demand revenue or margin, XXXX, $XX aerospace For we

First XX.X% margin EBITDA was of margin record lower in prior-year quarter operating XXXX EBITDA reflecting the the quarter, the from XX.X% down in cost. volume

value-added of XX% for for as quarter business XXXX weak. reflecting commercial demand to defense-related aerospace reflects the continued partially to on value-added or aerospace Turning the declarations increase Compared stabilizing, to shipments customer modifications our decline value-added of first second included revenue in strength strength Slide million first improved record million XXXX XX% high-strength remains in by in a for our in similar $XX improving demand for while X, space and as declined XXXX, a related run million additional quarter high-strength continued application slightly, demand rate, under first reminder, for increase applications. million aerospace $XX or revenue which a defense-related of impact shipments revenue demand $X which compared of half again in our the increasing revenue quarter the on in to jets, and quarter percentage to contracts. approximately The in was COVID-XX third commercial offset $XX shipments demand, the recognized multiyear X% our XXXX,

the a increase new favorable revenue $X XX% programs. Compared of XX, of continued demonstrated of and for shipments ramp-up or the and by to $XX XX% the million X% automotive for launch Slide second quarter XX% improving or to half an million value-added demand, the mix. $X to continued first increase more quarter in Turning ramp-up XXXX revenue on XXXX continuation automotive the reflecting driven the increased compared on quarter, million XXXX prior-year of improvement, increasing run programs the a and new value-added first trend in shipments, rate,

the prior-year reflecting in and increase million revenue second XX% XX% on chain. to XXXX restocking in $XX million demand, chain semiconductor value-added the XX, in value-added $XX growth or to quarter engineering service the in and increased center Slide strong of restocking a first quarter, revenue to half demand the supply for rate, Moving underlying continued general shipments applications. on underlying demand compared the supply strong continued shipments, or automotive XX% general in engineering a increase increased Compared million run and in $XX XXXX reflecting of XX%

value-added by appendix presentation. Additional be applications found this in market and on of the can end detail revenue shipments

net for compared $XX adjusted the adjusted the items, million. of primarily of Moving in for $XX was $X to XXXX including non-run-rate $XX lower XXXX quarter million previously the income fees Slide XX, completed increase reflecting to and $XX the second in first million, was the of of first operating income $XX $X reflected interest for the million reported in charges $XX non-run-rate quarter of EBITDA Adjusting the operating as net to first compared million impact income million income quarter approximately prior-year of bond million quarter discussed. XXXX income and was quarter. adjusted pre-tax XXXX prior-year The for our the integration in adjusted change first $XX quarter. primarily $X Adjusting the $XX operating income million offering for in income the Warrick net million of quarter down acquisition for was of to approximately costs quarter of from Reported million an million related XXXX. net prior-year of

tax tax impact stock-based will our low-single of remain due we of of in tax related and rates we consume under be current until tax from the term, a the valuation of in tax to quarter For as estate benefit anticipate the million first Long of in Warrick addition XXXX, We continue primarily $XX cash recorded XXXX. the to compensation. NOLs believe federal benefits our our on the a tax that we rate the excess year-end approximately recognition rate acquisition $XXX,XXX of approximately will effective allowances digits mid-XX% regulations. to

to reported, quarter $X.XX the compared per $X.XX $X.XX XXXX earnings shares As diluted was in share per $X.XX prior-year for diluted XXXX first Adjusted and the first the quarter. earning and were quarter respectively. in XXXX, the

completed closing of quarter. The finalized are to purchase liabilities. is adjustments Alcoa of in still expected Warrick XX, Total reflected assumption at funded to which end proposed Turning working adjustments, Slide be $XXX hand and also XX, million, was the as cash outflow capital the price closing subject cash the with million fees. which settlement we second the the LLC. by final approximately other on We to on mentioned, acquisition March post-employment of transaction Keith XXXX, $XXX amount

quarter under no transaction costs, of the the As – our credit provided revolving quarter of $XXX more the approximately $XXX and facility borrowing after undrawn. reflecting of Warrick liquidity total $XXX facility million. and and and of were There cash on during million million borrowings than facility $XXX the revolving March XX approximately availability first credit total results million remains

XXXX year to full of have spending we our any initiatives. pending growth the With billion Warrick, the be further addition $XX anticipated to million revised capital for $XX

We with will support manage additional to million million several continue ramp to and we integration of update our service the discuss non-run-rate, integration agreements transition to part the up our anticipate call to we turn and of system Alcoa Furthermore, acquisition continue of through now, our XXXX to as the through complete support over to processes our remaining $X office year. onetime back outlook. to operations staffing. under an costs I'll Keith? year Warrick Keith And related $X the end the back occur of the

to rolling integration outline as the focus of Warrick of priorities now recent on Warrick Thanks, like the Neal. our acquisition our into begin and Kaiser. we mill I'd

and Warrick in purchase North a facility as As American workforce. supplier to operated stated its the and we team strategic announced and late has customer experienced and the management been well-established. talented is base November by a well-maintained reputation Warrick's we quality deeply XXXX, solid and is when

mill served packaging with For decades, products rolling the capability and in market and unique beverage has for applications. America and the a coated Warrick packaging substantial bare North food

the the meet we expect to differentiate needs and customers our serve. further of growing markets supplier the Warrick serving as with in continue We these premier intent markets the to

how Here's this. we intend to achieve

team mill to services we and Kaiser. transition the and Alcoa fully rolling support working to are Warrick with First, the

Alcoa by We have to office next delivered plan back transition the established Kaiser months. services, six over to to XX a detailed previously

level toward services, is us demand to quality mills' these of work transitioning focus regards our remains on commitments. we we of counting with goal completion high they servicing is ensure and know satisfaction highest delivery, on our customer as meeting are to the As and market to the customers rolling our at

management comprehensive, Second, we team over markets packaging plan a XX the our long-term customers to engaging the Warrick Warrick key on strategic for days, and plan next with the we develop and serve. end

customers' better to needed be our products, will for focused needs priorities We packaging determining with America. investments specifically capacities, in North align aluminum on our products and sheet

work those strategic have potential we'll number our we which a once our to organic on of likely Finally, consensus focused customers include of maximizing forward, investments the will strategies, execute with Warrick. on path

have implementing much to we successfully growth our organic demand who the meet at markets executed experience are We of years measured very in our As in like packaging of customers, expansions seeing mill you similar experienced rolling six Trentwood a today. the number we curve in aerospace know, considerable this of needs type over similar growth. a

in advantages market. in documented. in success promising. to capitalize to to is materials. is its to long-term needs Consumer areas material versus North Our over of the Warrick are partners, sustainability strategic we other requirements water. on X% seltzers The up XXXX use projected highlight at can as X% XXXX for was year-over-year such is the an responsibly very these to the the beyond. in American continue to aluminum its including seeing preference demand packaging while increase intend is outlook infinite investing spiked also packaging and as the craft apply We secular increase and aluminum growth additional X% of our carbonated our opportunities to in and drinks, approximately choice Aluminum beers, recyclability materials the well expectations meet satisfying of and soft of stakeholders other continues packaging characteristics favor learnings

balance aluminum automotive progress ongoing aluminum point. the volumes this has domestically. been price, during sheet reallocated applications, dedicated American supply/demand recent work market maximizing packaging increased challenging to North industrial With previously limited considerable historical Finally, performed mix, the capacity end achieved to markets, with contract packaging further on renewals, other including and and been investment to has

earnings supplier strong for We strong if discussing with over sustainable an plus investment next demand domestic July to our discussions highly needs. sheet deliver portfolio XX before. not capital that with equally depicts a partner their desire aluminum can products call initial these our to in anticipate five other next in years meet Our the customers to and plans maximizing opportunities in with

more time wrap that our and potential the we long-term up very appears year businesses and different as ago. the extremely So, positive much remarks, our reiterate excited of than future this I'll a we're about prepared at

revenue virus. shrinking reported and And protocols our engineering in be manage Warrick for quarter anticipated have the with now existent, embark the XXXX businesses fourth acquisition, the of applications on our new lower We for would of long-term year-over-year margin earnings we XXXX, X% value-added full-year safely of first completion call continue cost. and provided driven safety EBITDA general solid strong during adjusted automotive, still threat to will for an approximately comparable businesses February with with by growth but results. opportunities mindful COVID-XX along we XX% growth. to up existing with the in to defense, We The quarter the outlook

approximately million year of XXXX reiterate $XXX the value-added full-year to and reflect consolidated XXXX. revenue of of margin over of the to EBITDA we With expectation adjusted to comparable for million additional acquisition have now the balance updated the Warrick our completed, a outlook $XXX

our As earlier, our Neal in $XX we forward. anticipating XXXX additional continue noted business with we million investment for spending, updated in the potential million path refine the have to $XX as outlook packaging for strategic also capital to

and high-strength in warrant. We markets markets and capacity continued recovery also demand in full these remain for aerospace customer fund additional growth the to committed as

the and high-strength trends global food light growth from to vehicles We aluminum with the our light applications, weighting with continued aerospace other portfolio continues the driven truck are and and return the in which supply. each conversion for diversified growing extrusions and experiencing strong and end general well-positioned with beverage for with secular and continued preference Automotive passenger sustainability-driven markets. passenger of can and air strong served Packaging, materials, our and car long-term a in of of a growth within engineering plastics expected. show chain, heavy demand economy markets travel by recovery supply to domestic restocking

we our additional expansion providing before. have anticipate if call our accelerate opportunities liquidity identified plans served that, fund call our growth. around in We July With details the open not our to multiple during that We now have markets, questions. earnings growth investment to for future sufficient I'll and

Thank Sullivan from first Please our have you. [Operator Benchmark sir. question go Josh And Company. Instructions] we with ahead,

Good afternoon.

Hi, Josh.

about you Warrick's up market structures – renegotiations that a like? talk Are now Are tighter? where just is Can the the what closed, little getting they contract can any look multiyear? coming on do for we

that is of these are multiyear in found contracts we What Sure. that most are place.

next During place. discussed, we're and and we'll some closed been we'll strategic middle we form we renewals in type that actually length over in we some contracts renewed process have as of completed what have still couple the outstanding to we've also and be diligent of some contract of and the – the years. going review, on have be through have Warrick, will Josh, the And planning go what looking as forward. We as of period extensions

there's lot the near extensions. expected So contract future activity of and a currently in and renewal on

it. CapEx Got capacity has about a then sounds go lot you so through like if what got capital kind the still is investments into? the $XX where into still like a there. guys of or going of it Warrick. million seems Where there's But it – going are aerospace existing And current the might

Sure.

remains we're businesses business. XX% So are when the existing you have depreciation and the looking Warrick, million, true, and some we've if typically, for an projects you CapEx growth the $XX already sustaining roughly it they then of said projects additional And we look at and/or identified and of CapEx really – when you sustaining funding. roughly growth the roll $XX at million in have we're that

out CapEx How there's to to going do Kaiser's the semiconductor in demand that manufacturers. with industrial, you buildup? of regards a think long semiconductor for And will obviously some the announcements that demand then cycle of plate last just large semiconductor

long I last, demand. But in can tell second you we're this of go-around our to tough It's year sometimes strong Josh. extremely predict these how in

center things about in the demand The still its well-positioned demand there we recent you it customers we're up, lose that. product, the chips supply more well-suited. being and announcements Select and preferred as that our we may with excited more and is America, plate and – is of and while think domestic we're cyclicality, require As here some supplying too keeps are we North see, going service that not Kaiser a for manufacturing OEMs supported in with

think potential growth we long-term So a good that's us. for

Got it. queue. in Thank the you. I'll jump back

Josh. Thanks,

And thank you.

We have to queue. no Keith now Harvey questions call in further I remarks. for turn will closing the over

much. for your Kaiser XXXX to And you plans you time our outlook interest July. for Thank our during Have a quarter Aluminum. Okay. results our and look and good in you second call on very earnings balance second forward in I the day. quarter Thank of updating and

Thank you you. Ladies conference. Thank you for today’s gentlemen, may and now participating, this concludes disconnect.