Kaiser Aluminum (KALU) 21 Apr 222022 Q1 Earnings call transcript

Good morning. And welcome to the First Quarter 2022 Earnings Conference Call. My name is Zenaira and I will be the 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. Instructions]. [Operator turn to now Ellsworth. call the will Melinda over I Melinda, begin. you may

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

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

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

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

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

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

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

you Good Thanks, XXXX Melinda. us for results. review of joining first afternoon, everyone. in quarter Thank our a

Turning for the environment general across production. North second of packaging expected, and continued pound have our for Value-added in improved engineering a EBITDA XXXX in products commercial for X. to first truck reflected teams successful categories, all steadily million per as shortage demand for and, $XX our of automotive and American strong demand semiconductor our slide increasing light been chips aerospace Adjusted through revenue as sequentially products, continued the passing to board quarter relatively highest demand product remain with which materials in metal, continuing value-added all rising experienced we freight, shipments energy the see success XXXX. and we've these had as we've quarter costs. we the quarters previous to Automotive and the rising offsetting are in services and since costs, the other revenue to date produced neutral, almost in of value-added costs shipments due utilize. and remained to Even revenue flat

cost freight incurred to needed an our of products on experienced these in the utilized quarter, we our When transfer higher-than-normal shipments interim during rail results means quarter for experienced efficient customers. meet at we and export $X material utilized basis unusual quarter. shipping significant generally operations, reflect of ports approximately systems deliveries Trentwood First disruptions million where less the to

to demand. to generally expected including These general be at begun February improvements noted have we the I servicing during they facilities facilities automotive those as have unprecedented realized, improve successfully our call, continue As efficiencies in focused earnings engineering to to of our at most continued primarily to pivot XXXX. on

impact of Warrick efficiencies continues metal impact Integration for issues sometime will as going business regarding the the timely of availability final in forward. Warrick on significantly quarter. to of business the reduce We the chain Alcoa and delivery supply However, lingering at agreement conditions the with and negatively packaging operations. demand have these second quite temporary strong, remains actions magnesium packaging believe completion products expected service we our the with taken of our continue

Looking at positioned. environment, is global the the well company larger

our With heavily the markets exception of North aerospace, American centric. are

have strategic chip in blue multi-decade our We have contracts of markets. relationships and with customers our long-term most

will for base and is to we these most positions. supply Our to continue diversified, part well improve work the

percentage of portion our produced been small Russia, While have historically requirements requirements in of that aluminum sourced now elsewhere. our small a is primary being

supply the to supplier. up targeted and in The past, on have cost. over on capital, to on markets, more follow our other managing growth time are outlook secular a focused And all for the relentless strong have company maintaining in we we while our qualified to afterwards leverage now in major of I'll Neal? our business and the addition, mag by diversify anticipated structure. debt reduction reduce dependency on discuss we of conservative continue maintains In balance Neal and levels the year. first our to manage as in results the continued our expanded focus heavy our sources supporting we will use one detail, strong quarter focus from discipline will of of capital

afternoon, Thanks, everyone. Keith. Good

applications or value-added part XX% impact implemented revenue XXXX of $XXX rising other XXXX, costs the energy quarter freight, for million and of first Value-added $XXX first X. in XXX% XXXX, packaging contributed of reflecting offset strength On XXXX. reflecting metal, XX%, of to to million of slide or inclusion first revenue on to during basis, a for shipments of first the acquired the date. Value-added our improved quarter the from aero of high value-added $XXX in revenue increase the latter XX% initiatives $XX million XX, improvement the business approximately to XXXX quarter to our which of pricing on March million compared sequential revenue XXXX. primarily increased quarter to Turning the a

from the in business for price or continue reflecting aerospace improvement XXXX along see the in jets improved demand We shipments, quarter of with costs. XX% inflationary a strong applications. through of VAR demand defense and fourth first pass the our higher reflecting basis, demand a improvements in and sequential to X% $XX applications, On improving continuing our commercial on million quarter

strength up XXXX The record Our revenue was for $XXX from general to the XX% million the of a million value-added increase XX% a $XX of or engineering first in up increase first quarter quarter XXXX, shipments. strong in on demand in industrial applications, our in driven value-added reshoring, general revenue market. and the pricing North shipments America tooling plate reflect and in general and by for semiconductor in applications, engineering used improvement

other value XXXX, million XX% semiconductor of XX% a the increase quarter shipments. million fourth and million automotive over shipments chip compared $XX shortages was XX% the the flat or XXXX XXXX added North First chain $X of up XXXX. automotive on revenue decrease issues was approximately a on a Sequentially, result first value-added in quarter impacting quarter continuing to down of American $XX revenue quarter in the was in fourth as supply the of Automotive production.

higher the in As in noted, on increasing reflecting previously sequentially flat million XXXX value-added applications first compared million packaging improvements XX% our or $XX was relatively shipments, pass the quarter costs. to of fourth the revenue pricing to through XXXX, quarter for $XXX

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

slide X. to Moving

million quarter or $X XX% approximately basis, XXXX XXXX, increased higher $XX related and compared EBITDA noted compared million XXXX first is our On XXXX. or discussed by reflecting adjusted XXXX over improving, the million and quarter Adjusted integration quarter as and value-added continuing, adjusted as reflects the of inefficiencies sequential the of EBITDA of quarter up distractions. of the Warrick operations quarter the EBITDA reflecting overhead First freight to acquisition. the $XX operating Keith but fourth costs of the revenue incremental manufacturing to a value-added offset to $X costs revenue, and chain first the higher due supply for million to at Warrick by earlier fourth XX%

from of slightly XX.X% For in the quarter EBITDA XXXX, but the quarter XX.X% XXXX. of reported the XXXX, we first down the in margin, XQ XX.X% up fourth from of a

adjusted acquisition. income for the quarter, of $XX for quarter for to as the EBITDA, prior-year depreciation Warwick additional the by and previously the which first predominantly for up XXXX was in Reported reflecting related operating XXXX offset items, from discussed, million $XX for was Reported income prior-year million, quarter. net XXXX million, prior-year $XX the $X items, first Adjusting primarily net in income comparable of quarter. adjusted amortization compared million million $XX approximately in an XX. slide quarter rate to of to income non-run rate change first operating quarter million was to $X the of expense the non-run $X was the $XX Moving Adjusting of million. was million

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

effective the quarter expected effective The rate XX%. rate increase Our in was driven tax compensation. the of for XXX-R was XXXX by stock-based primarily first

rate we million to Total no $XXX X, and March cash long was year I'll the of cash be year-end the million, in of On until million completed extending And April were over $XXX of under remains the revolving borrowings XXXX, the Keith? credit believe credit an the increasing the term, commitment $XXX XXXX. providing and Keith. $XXX tax credit facility million. the our of to remain continue facility and our low-single mid-XX% to current we we the revolving tax million cash April total and now, the in during consume And of NOLs maturity as had undrawn. availability back under to million federal call digits of facility There as under anticipate XX, amendment For to equivalents. turn the approximately $XXX effective revolving liquidity our the We facility will tax amended that quarter will agreement, $XXX from the full our range rate regulations. we XXXX.

you, Thank right. Neal. All

to to Turning increased demand looking XXXX. jet the and revenue in of due fourth business quarter Aerospace end X% XX% XX in strengthening XXXX. quarter slide value-added and to the increased aviation. continued and from improve Shipments all defense, customers value-added first and of balance commercial shipments revenue from at

We our value-added call. February year-over-year, in of XX% as continue to XX% discussed growth anticipate to revenue

that to to recovery recovery. in is aviation anticipated on well track, be continue commercial positioned participate the and Our of we market

quarter the we costs issues first aerospace these resolved. of largely costs for As our products in Trentwood operation, export associated significant noted, from incurred multiple transportation have due been to bottlenecks transportation with but

impress. strong. Value-added first first the to stronger results quarter XX% general general XX% our solid drive quite over typically seasonality considered and year. Turning markets engineering were XX. over results the had strength start while the which increased quarter to results, revenue quarter engineering, our slide market And of fourth in We this to to a in in always expect XXXX continues we quarter the

Our providing teams a in in well positioned offerings. higher done job demand our and have product the with additional capacity great we're the market broad meet pound spreads per improving and to

it value-added we now XX% outlook. to reflected first year, the the XX% conservatively torrid While the pace increase closer approximately of that is will markets in maintain growth the balance quarter high experienced for XXXX to the in the our the of prior be uncertain believe revenue will end year-over-year

Turning to Automotive shipments remained sequentially. value-added slide relatively revenue XX. flat and

available, to end production. North expect become and and shipments revenues truck automotive American year, more for chips stronger accelerated as both the towards semiconductor continue of value We improvement light added the allowing

multiple and up in new expected year. and we these reiterate our utilizing products to to demand grow versus programs. XX% We addition, The in the for for XX% XXXX prior new interest in revenue, outlook secular shipments value-added favorable In on growth our applications are continues applications. to on quoting extrusion be outlook continues

to now Turning XX. slide

very and outlook terms continues to Our demand secular the growth. packaging for business of be strong in

the As outlook anticipate XX% call, of of value-added February full improving for quarters during the growth year. and balance to we reflecting of our four benefit of XX% the earnings for mix. sales these reiterate and We noted revenue we year-over-year, our price applications

margin higher secure successfully with with contracts we favorable addition, to additional for terms customers supplier positions have strategic products. continued for In long-term

magnesium supply and issues focus portion magnesium impact a have supply chain large we fabricate continued a of operation. to as relatively alloys coated is tan for used beverage alloys use high lid to of packaging large discussed, have with consumer is As our tab supply body magnesium, applications. applications. can products food our Warrick on and to utilized These with metal ongoing beverage as production specific content compared and

majeure September US we volumes main Our XXXX and allocation of that below been time. supplier, Mag, have declared in our on force since contracted

US we could agreements. we this from minimize securing customers, as To pursue all our magnesium to additional customers We the continue to considerably costs obligations contracted have do any continue than our so with at worked resolution impact all diligently issues work and to our in event, to have to options of we to and Mag. met order date, where including our higher we concerns

Turning regarding large our planned an February XX. and expansion And increased update Trentwood. structure outage finally, now in on seven to call project maintenance of our slide third quarter from spending, phase for comments the discussed major XXXX

incremental and maintenance in facilities spending outlook given spending line facility major for second versus in the approximately to $XX $XX first support quarter approximately including expect $X projects at spending maintenance of million million February is equipment casting million. expected with quarter the full-year This reconditioning. planned to We major our in several XXXX of

to beginning July heavy our Trentwood at upgrades We for stretcher. gauge are preparing and outage for our a facility reconditioning multi-week in

investment lieu included discussed previously rolling no to launch mill, and These for and actions With seven for time. decision is of plate, a previous change pandemic. new no reached discussed, has purchase from stretcher will represent As previously our previous when outlooks aerospace engineering project to no prior planned have Trentwood been the previously planned in expansion announced discussions. increase spending this which a the this general this and of is phase will in respect at at project been capacity

next to monitoring the conditions continue will at evaluate We of launch market facility. appropriate growth and timing this Trentwood phase

slide to comments. and turning a today's Now, summary XX of

packaging continuing considerable and in and engineering semiconductor and truck strength around markets continued supply improving with our strength Our major steadily markets, our chips light first demand quarter general chain issues aerospace for reflect results automotive production. in

mitigate aggressively in disruptions businesses. as continue costs We to address well as to inflationary challenges and conditions, higher our supply continuing chain

year We costs continue commercial continue today. full up have as improve, the and open any to XX% to XX%, expect the operations the to improve. call efficiencies improve, anticipate normalize, EBITDA may remarks margins through you questions margins to for year now conditions to further our and strengthening address I'll and from of

from Chieng [Operator Emily comes Sachs. from Instructions]. And our Goldman question first

of strength improvement My first basis. little seeing dollar changes the on value-added question we've specifically and the a a revenue on looks the is bit just a seen And strength high been higher past. the side. than $X.XX the piece achieve, aero maybe start and per of you're aero high And the around step per and to of it. let's It is in you've that side able here, packaging with some pound in like in the pound even change what

that? function So, curious I in driving question, that's there? mix a if first guess, volumes really just of what's is shift Or the

continue not The the some products certainly necessarily beyond that the additional on through But on ensuring as we'll It $X.XX through but push these will demand. to had in demonstrates that well very these board we're be we price also we've of which area, change in can. at level. really or all through the some seeing success pass Whether reflects our as area, costs we we've across good first focus improvement demand passing able our in we're on that the sure effectively some that and increases not same costs improving improvement that as same mix. demonstrated as quarter, that

the through I'm additional continue improvements year, we're be the we going to incur to continue as system. cost continuing So, throughout to especially these hopeful see that

of of issues mitigate Maybe in what like are it have date over think should chain should can is of that then? or we a shifting there. about be to seems gears sight these? And which that impacting some discuss a to you But by there which there been these actions supply still Warwick a couple are and taken maybe facility line impacts

this to called the issues. of am two quarters. last three those quite And all we've to frankly, I or out Well, tired speaking

separate you hot past. headway. are have We expectations by when the our mill metal weren't Alcoa. And are there making performance there two owners, We're perhaps In the with in that were and making rolling the person. past, supplier, the same on smelter the headway owned

smelter and So, of from the we've the operations. truly negatively impact that focus a actions timely there. don't of had what we've done we get improve the operations, That's materials performance the lot a to efficiency dialogue that on to that delivery of of lot so

some actions taken quarter. we've first the in significant So,

force seventh from were improved With to forward. the second going supplier we've our expect dealt majeure around majeure, major quarter that, three We One been York. declare US in week regards issues beginning see our with and New force whether area. was Mag some month or have. US we the results very there issue in federal now with of not for in we frustrated Mag majeure. mag, the in our to issues is We're to the this complaint filed where we their supply to force last The court point the in are a entitled

The lack contractual US our maintain been to according and other on a was to of majeure communication for the for has then Mag's frustrating very since us declaring a failure force through follow conduct safety agreements. And finally, performance. stock

And so, we're take those to additional going measures.

spoken And US that effect. taken past I those I an the we have position have taken, a the into going which the minimize customers out these to about those, Regardless our would that'll the have have Mag, our time, diversified today, to costs. but supply are dealing with area, that those few costs, and given of are and actions global remind we have timing we're that in in back over time. we've our costs later. our being And other Right put and things will outcome we the we that so. to diversified of Now, now, do has that done hand. changing think everyone, allow improve recoup the and have higher little steps taken at have of we us with been position supply in recoup to a But base. we that that are in bit that Emily, doing scenarios we That's ability contracts impact we have of place and these provisions

with pleased of the actions basis to very I'm the a taken So quarterly reduce those costs. we've on impact

costs we we're to ramp forward. move to focused, our to where going our there actions be to finalize are performance, these and going and are here However, up continue

for to revenue first see industry? the XX% margin to were margin to margin need able resolution Or a below I'll Is range, year. am of experienced I that, the little just at I environment the If full in in it more is know that the what orders one challenges a we of in for you and quarter to improving margins were on do environment? end value-added but aerospace that expectation the squeeze target there, XX% Trentwood? guys it just steadily reach demand the that that. market leave some it of XX%

our basis in reduced Trentwood of that back at had points, Emily. we million roll couple there, a that we had margins if will, that impact $X you The costs hundred of

our cost perhaps revolves higher even piece, we're that all performance really operation. and at .The experiencing the it quarter with on issue demand the to our at on our cost But artificially businesses the lower point, really strong in the EBITDA think ability what here the move I of had answer bigger was cost, Warrick the than us in the we maybe expected. get to and around we're So, especially spreads is seeing margin up

strong really I top back with if to so. with we're we demonstrate customers can actions of a experiencing, you and the where have that margins with And to that think that that will on we're outlined. I the that earlier costs certainly, normalize belief path our growth on outlined have the these track have question, been we've on what outlined So, line that your market. capability return the back do those we've some experiencing I we And we to

Our next comes from question Josh from Sullivan Benchmark.

pulses supply you seeing rates excess OEMs yet? Are pulsing build of as demand In current through what are in those aerospace, as far chain? the

I think of there's bit still a good material.

and incur. good right that's from driven to have the commercial good in not concerned see issues, see been on news continues. missing to defense the good quarters. quarterly has pull continuing to like That's we're are to we've with the are a there's positive quite now, that. link other from related And and large We're real getting That starting aluminum, That's But titanium been pull. though bearing about that that bit is been frankly experiencing that's that that that news. end. chain initially pull been waiting to previous I comfortable Even some where Josh. recovering sign. by we destocking but an may not with things supply we're of some coming think talked good OEMs. our folks, positioning. large jets aviation on starting aerospace, shipments a the we've business in others of perhaps the a were We're materials OEM the they But or customers that relatively We that come

we expected first working strong I up the starting what back right think support when the not in as at position that build And we're We're to now is towards. for supply four, ensure good XXXX get rates those that enough, what XXXX, of the we're for want and balance that's open that good see really base to higher but period. expected to that rates seeing looking strength year. they're timeframe, is the the to they pull, just all

other we're customers that think and and those dealing little beginning recovery, to the about I But we're rates. higher So, crisis things in are to road. road see and these have I'm with Ukrainian sure the some things, that recovery. some still of starting to We're of they'll begin to orders the the our on support talk blips like

production of has you announced has versus that, the fill budget? for XXXX what the DoD rates is US between side going demand gap the think to in defense for the JSF the do international what just the requested on the OEM

JSF growth was allow that F-XX. favor Absolutely the may support do. the partners. three over for the major saw over to not We had And or moving put there JSF. most be continued program into of I'm for came the commitments that the sure, think was two for to the Canada, recent, We NATO I program hold but in

So, that believe going we enhanced. to to continue be that's

We fairly other we well. other strong result and things, to the we demand on things defense that cover, from expect as like also think spectrum munitions see that

become from defense perspective. growing think a opportunity to going demand I is a So,

lastly, general pricing engineering, levels, Just versus are know indicated on of is how it structural? transitory think you really this I high just you but pretty some sustainable? is what's much curious these that

growth. time, Again, we're this Well, of demand strong on permanent the is American to reshoring factors that world some that whether all to capacities those that long-term demand weren't those drive the the it's an meet fact it as interesting Josh. seeing aero is in to number we market. the that one was are unprecedented. significant continue. going relates becoming We now. that's is to saw of time We or not time, A actually But at and We XXXX stronger And more level. going able so secure a have in demand. believe North the

over use beyond reason. that now go comments I will normally this believe, seen at word in center way be really I've I it the service account, from that not maintain never the demand my I've not inventory I or opportunities say, customers the of we and is environment torrid strong. the Now, those to and seen is. take – into levels we not it see real. sure more pricing never our We're my than this continue the types but that In history, for seeing whether that in that the time. for prices time, what had they conservativeness longtime, will a

that's taking build big of no place. there's So, restocking

true meeting, is for a is thing. part, So, the which this good we're that most demand

so, are We've pulled And broadest those positioned. product service. the now. all We're of offering well industry. right to being And we're continue to strings in going got the

the I But really this time. pace, to period We're taking at Whether legs environment. not unfold So, few things have for of to it's advantage or let really it. now. has think of we'll good that good it understand a continues right a

questions would Mr. like the at We closing to for call turn remarks. have no I further time. Harvey this Keith over to

I day today. Well, to second have our during Okay. joining earnings much Everyone, and great XXXX July. us for thank forward quarter look thank call And in you you. updating a very you

Thank and conference. gentlemen. concludes participating. you, ladies you. for This And thank you today's Thank

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