Kaiser Aluminum (KALU) 20 Oct 222022 Q3 Earnings call transcript

Welcome to the Kaiser Aluminum Third Quarter 2022 Earnings Call. My name is Vanessa, and I will be your operator for today's call [Operator Instructions]. I will now turn the call over to Melinda Ellsworth.

You may begin.

Thank you. welcome [Technical Aluminum's Difficulty]. and first Quarter everyone, months nine afternoon, to Third Kaiser and Good

on at If our visit page earnings not release, Web you've seen please the a investor kaiseraluminum.com. copy of our site relations

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

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

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

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

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

for a quarter review for joining and you thank us results. third of Melinda, Thanks, all our

to X. Slide Turning

at at third declined rolling Kaiser primarily we While quarter, the tremendous reflected associated issues in in have made million costs of Trentwood, to our Warrick, Warrick significant headwinds for outage Mag EBITDA supply Alcoa the and chain the at moving the the our U.S. a supply which position and believe million moment. reflecting in chain on at caused now challenges $XX our incurred planned headwinds, More during We disruptions these third quarter. approximately mill, significant the forward. totaling to topic most resolved. operation, we year, this issues which results predominantly quarter with for $XX the Warrick incremental success aggregate related in are to progress

Warrick, at actions balance normalized believe With the challenging a work taken more environment. very well and the of positioned our are a and the facilities now for other to Trentwood major operate in rate run year we complete, remains what

previously announced, we declared deliveries majeure Mag. magnesium As the mill cessation rolling U.S. from of Warrick to force due at our in abrupt July, early

alternative additional in finalizing was and for requirements from have agreements XXXX all beyond. magnesium However, point, secured early the and our successfully September XXXX we qualified At and in sources. majeure secured lifted after magnesium of process are this the force we through

Mag or no packaging third beverage and quarter. time magnesium diversified shipments and food of majeure, in forward. products Mag longer supply production to we anticipated reduced in the As no on At geographical believe continues, we by base XX% shipments our be is supplier could previously factor our a U.S. supply the certain result, declared expected a XX% force and base of moving reliant Litigation is a but region. we well single longer we U.S. are with

the we’ll restored, our Alcoa supply magnesium and shipments with of continued security than now remainder Work better normalized improve negatively quarters. been and and efficiencies year. acceptable the rolling now actual to which quality with addressed issues the our and quarter have have These fully return of to the back Warrick Alcoa's smelters customers for impacted the with performance were performance, Warrick's during work through to mill the production several of to and more expected, the performance financial improved Our capacity levels.

As supplies and the our power Longer disruptions. second materials sources going as continue use increase additional further materials mitigate raw percentage a call, any earnings our our the diversify operational Warrick. qualify material more term, as noted sustainable raw of in risk recycled metal continue forward migrate we towards quarter we to intend metal of at supply to we of and molten to further to

satisfying During on the complete body our general customers. and moving Trentwood rolling market mill. is planned meeting completed There our disruption cast to our for major to long growth the house quarter, other improving the Trentwood continued plate. this minimal areas we want and large work demand strong significant stretcher, the to mill positioned there I within to finish the congratulate outage at and a was work forward. our and team prepare effort the with strong continued engineering year for we forward completed put for on a aerospace focus of for as tremendous operations well

Warrick roll beverage at our make capacity We and our expansion good coat for progress on food facility. to can also applications project continued

begin significant the readying With fully summary, of more on following XXXX with pleased to quarter. operational or experienced third made mid with we equipment site the operations progress on XXXX, levels during roll to production to I'm to we be In XXXX. our we have line to the headwinds and late early normalized new are the order, focused installation in the for late coat startup the restore

demand strong has remained balance the serve, of continue portfolio the of to solid for have and markets a expect year. and the majority we We which for vast diversified we end the

offsetting nature these conditions actions commercial cost efficiency our and to higher on and inflationary focused strategic high to efficiencies the am costs partners an through growth with now flexible position, and having efforts, adverse market Kaiser. Neal improvements of to margins, detail continue multiyear over support the within confident on I profitable for Neal? contracts structure. quarter. our and the teams our on continued for are long-term improve will I'll more our turn inefficiencies impact operations, continued strong cost relationships and solid are demonstrating While the our call remain reduction cost customer

Thank you, Keith, everyone. and good morning,

prior inflationary Turning $XX improved predominantly million revenue to XXXX markets to X. pricing period, XX% added reflecting of the $XXX across year compared to our million quarter costs. Value the of Slide for increased the impact third end or mitigate

XX% XX% revenue to in demand impact of XX% $XXX $XX our million in shipments, XX% higher XXXX year-over-year, on at first Aero the revenue value service first value XXXX. the increased XX% add relatively higher, year nine added value increase revenue primarily by force Warrick commodity revenue flat $XX pricing. increased million for Packaging XX% added XX% a other increased driven higher months, reflecting planned with nine to value a facility. our compared million value value $X months the reflecting shipments, extruded improved while year-over-year Trentwood $XXX engineering higher General pricing pricing, high ongoing automotive increased acquisition, while $X and in added improvement full reflecting higher months disruptions. business to revenue year-over-year underlying lower commercial Value continued continued which chain of engineering rod strength in higher shipments. lower revenue shipments for for on while was value and as year-over-year and of of continued add million nine shipments high of million mix or $XX shipments, strong in high on nine demand. X% bar first aerospace an surcharges reflecting compared year-over-year aero of July was automotive majeure for pricing General shipments, packaging driven Our lower strength $X.X by improve by add the added or nine reflect revenue million billion million, by XXXX on for products. the surcharges of on add to months products, months applications or impact the or softness million products reflect of improvement centers. reflecting or outage the demand, X% $XXX million declared lower and the reflecting prior first pricing the and or higher $X semiconductor Packaging commodity products shipped the XX% improved the improved supply million, Autobar $XX

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

a higher the to to facility. declared Reflected quarter. year the compared July million X. the for packaging decreased current are $XX at inefficiencies planned to and majeure outage the EBITDA costs million a quarter our $XX Adjusted in operation and third quarter Turning at Slide prior in due Trentwood force of XXXX

higher to efforts, reduction we aggressively actions. inflationary we driven costs, by cost efficiency and projects addition, be with pricing In improvement continuing are to which are offset affected moving

Our quarters, have third the higher costs The the disruptions decrease now nine X.X% the a reflecting for have which of as supply reflects XXXX. EBITDA $XXX this the noted costs, discussed, the the been discussed first margin in and months impact as $XX decrease revenue, value prior and quarter major of year of $XX of employee added manufacturing, million maintenance, and XX.X% XXXX offset noted EBITDA costs. to by as period, by declined previous as Adjusted XXXX and of higher was as from the months in freight inefficiencies well higher compared first the energy related addressed of million we chain Keith. nine million, incremental

quarter adjusted income million prior million, previously for from due million. the Moving XX% for decrease to income of operating down in third the as $X was $X EBITDA on million of discussed. Slide $X charges, rate third non-run to the Reported in year XXXX XX. $XX was primarily operating quarter, Adjusting

and reported income income net of third of the XXXX income quarter above, prior $X [Chart] million $X quarter. million loss $X year in a to million third Adjusting depreciation net for for XXXX quarter reported income amortization of $X of adjusted In net incremental compared addition, was the quarter. items $XX expense. prior compared for the was operating includes million in million rate the noted year non-run adjusted net to

of income, a of sale legacy a million of to a primarily other quarter pretax also nonstrategic related asset. land third The XXXX reflected $XX

impact the the $X reflecting recorded the a For adjustments. quarter we third of tax XXXX, acquired of expense tax million, of

range. be of end year will anticipate XXXX, consume low our low to taxes will believe year tax digit. mid tax full XXXX, we continue And to the long items effective low the rate For the rate term, our now effective until mid to which, $XXX over expect digits remain were discrete mid that in the we as in we We to of single be annual to XX% before our NOLs, in single cash our federal million.

per the the adjusted reported, diluted in share in share compared per diluted year a XXXX. third $X.XX was per Adjusting $X.XX for quarter. an to share As in per income income diluted quarter third adjusted the was of quarter income rate loss prior $X.XX share of for 'XX compared diluted quarter XXXX to of $X.XX third items, of the non-run

$XXX $XXX million. borrowings There million As XXth, cash than facility the of revolving undrawn. the quarter credit borrowing our in revolving liquidity remains September credit approximately were million facility no of $XXX the and approximately provide total underneath availability facility more during and of of

[$XXX] interest, million $XXX dividends working of predominantly build, first million our $XX of of tax. shareholders our available cash the usage, $XX and of For to cash million funded of inventory of months million paid capital and $XX capital, $X EBITDA to XXXX, million related of million nine

be working the more next to normalized the operating capital expect business adjusts a environment. We source over a funds as of to quarters few

full of chain XXXX over We Keith? Keith have quarter to I'll turn our spending to for discuss fourth the the to supply payments call $XXX on projects. $XXX million our and And back million beyond the the lowered timing XXXX year and certain to due outlook. planned capital business now to challenges

our right. And Thanks, Neal. year. for All for the the outlook now balance of

to XX. Turning Slide

for year. from grow due limitation recovery to increases to are as fully ongoing chain increases so, to reflective demand aero year have support. production end strong each fourth shipments to improve, the next commercial as XXXX being pandemic. We Business over other towards F-XX remain of backlog and supply for is real positioned in passenger jet Even miles the with strong, in Defense several We set year not production airframer support issues. in yet we announced planned declarations expected there demand programs. remain the chains momentum quarter by continue jets upcoming by or strong, years. airline increasing increase expect high led and a either strength been is to well business stronger is these the for the to and solid platforms by aerospace continues support single supply [Ls] legacy the Rate full a set a the

Our strong demand aerospace and our facilities, and quarter which service the end capitalize the beyond. Trentwood markets, high on mill fourth positioned well and are other expected the strength to in

Slide XX. to Turning

With resolution the Warrick and magnesium mill to in our environment, issues to return operating and supply rolling a the the of at September metal quarter. fourth early our molten to more see shipments continue chain improve in we expect normalized

and Our remains capacity intact. fully for outlook our long committed term XXXX is

decade growth As continue, customers and profitable operational be remain long new expected for track packaging to a XXXX. balance Warrick. supply is we outlook the our our discussed on term earlier, at roll in continued through for encouraged investment with and with line Discussions for the coat fully of in

Now Slide turning to general XX. industrial and

we quarter recent second was for slightly to over periods, were rod bar call, previous XX the noted our demand to supply at extruded products suggesting inventory XX service previous the we've levels months. elevated earnings experienced During catching strong centers and over up

of long current soft due inventories balance to into long in appeared service and levels. typical products. from extruded more softening But to inventories seasonality the quarter's the fourth shipments from now factor to we expect believe this in alloy becoming and that lower resulting lower third quarter, the more slightly products have centers out continue declined During with will is in and mills higher demand flatten demand. last We a in quarter

are engineering into factors we continue we the quarter well strong of opportunities. general and not shipments. outage products and allowing same the our Trentwood limit mills behind beyond. positioned importing Demand of customers plate remains with in XXXX. experiencing maximize the shipments these to these us However, we dynamics to market, with general engineering North from market strong very the fourth well serve American to into will are availability anticipate Global continue typical plate And us, the

recovery Turning XXXX. meaningful to slow don't due this chain we various to point, Slide recovery XX. any Automotive supply until its And at continues expect shortages.

Now Slide turning to XX.

half current outlook with major markets mix incremental expect we an fourth our of higher Slide we year to supply our continued expected margins largely this along summary, in and major and issues shipments strong quarter, now delivered to approximately our million that EBITDA Given levels improve quarter maintenance to our in have chain similar expected for fourth spend and XX. the the And the been $X pressures results of first the of in resolved. turning inflationary to in

of now any you investments mid conditions. Vanessa? to which expected high to Over intact With EBITDA an we $X we deliver positioned believe continue I to revenue margin timing approximately term, our of strategy to questions added range, value to may XX% well the and longer will in and remains that, remains the billion the the are and call have. subject macroeconomic open

from Instructions] The Sullivan Company. Benchmark Josh Our [Operator with first question comes

Just the what aerospace or impact you Boeing some the seeing issues demand to Airbus supply evolved maybe How are are engine far nine your seeing over outlook airframes last experiencing side. aerospace as within is on side -- commercial chain outlook, you as and plate got airframes, for you months? the how the

-- point, Josh. during the we Well, low

the XXXX. is there. full when and at was period, about aerospace depths to the point shipments high our And if the strength first the pandemic, of our actually level. XX% I actually, high look the year, actually during quarter of below in the market XXXX fell And end you the that So think, high

on we're XXXX around XXXX, we'll back but the recovering -- back. XX% be we recovered airframes. hinging period. really So moving still that for think so on late we're big feel That's the XXXX, down track on we recovery and We recovery commercial

airframe discussions to in our plate. Now with be demand we're major with all for the continuing there, of customers encouraged

on long And we're issues, other year and Now on the think recovery. still shortages we that improvement that recovery as that place the chain they're recovery and are we facilities track believe have, to more from in they're and especially account and into other for look position, continues, contracts on next we're surprises taking all as we demand with our major for supply Trentwood But no there's track. dealing with. and the the on road

What And any demand of as early then seeing large maybe of coming How sticking these far online? demand? of with high seeing you And that as some are from exposure are strength. is you America? capital then semiconductor equipment are currently of your capacity projects outside domestic indications much North

a there's big So suppliers. few

products provide they Lam -- end all like out Applied the the global. that tooling users, And Materials basically and which for making and really we point can on You provide, they're chip others.

So There's in actually a Asia. we Europe. the have a US. lot for lot production in There's

relatively US, what the announcement fairly some lot through and chip would for the production especially think I the end that. for production secure. strong our Biden of certainly customers working on I think Europe, a China, are in There's and question are be regarding recent

be based for that and So strong but continued demand we've XXXX, on now, wait had we see. go there could of some from government, the we'll have from very silencing expected there. strong that's and a But demand edict for demand,

just then on potential exposure Russian last What's aluminum imports? any one your to ban one. And

buy Josh, Russia. we anything don't from

I now? Just we mean So doesn't because for insulated. what can that Kaiser. don't market the speak isn't

purity learn really and We alloys. metal from have other also suppliers, supply lesson is diversified. of well to focus in us experiences regionality but we've and that very made our only only The on diversity that but mag not diversity, in not that, mag our had supply, ensure

pass know, you could in pricing. through. in and have up Kaiser some as the it spikes we model, So the that But down

don't supply us. diversity about base I of these very, And any on materials. expect So for I our -- impact impact of feel any of very that good really

whether it's in our something whether something happens So from global China, conditions. in macro we're insulate to all trying ourselves Russia, that best it's these

our We next Chieng [Operator from Sachs. with Emily Goldman question Instructions] have

one [Warrick] It looking in you the first outlook looks somewhere low My for about need the to on is improve we could volumes, biggest look fourth the margin margin teens else commercial range? close commentary, offsetting the perhaps you pressures? XX% XXXX, in mid that aerospace there. just Is should perhaps you're margins at see it inflationary quarter. is the we be improvements ahead like into what from thinking around towards your low to But as outline What driver EBITDA cost here? to

Well, of as I Emily. in we'll spend we're which question, is actually think a lot XXXX But something your on time through February, day. addressing every really

So disruptions behind impacted. we've major really put and us these that's

of just where Neal Kaiser out this if matter $XX we on year. a of As fact, incremental that reflect be incurred you the million today, would called costs

Just XX% today and on situation would this volumes, we if $XX we that that a we margin at million have the on business. be roughly on business back, had

So I'm encouraged pricing through. move our about ability to

long we cadence. move will are the and change back to area efficiencies the that we large that I on every without through have to caused. get marketplace. where we've challenge the our focusing that continue in us. -- where continue get believe see But have we'll to right these don't we available to Even all They and on these anticipating we've is will believe prices recover ones big stabilizing that we're what back that, want running but that been contracts, once now, disruptions do disruptions. start our plants market we're can market. to as into what in We able in operations. one normal that, be And as really have You we can to the The significant to term dynamics, we have a long

we cadence, into going back packaging. most normal in cost where in then over where pricing get -- definitely continues we improve we have we to improved aerospace, see we and that in XXXX. the And are As we're as recovery expect

type in that's be much major businesses margins, be markets business place we in product. going line roll to the really more we strategy when we've which execute and to of in robust. levels push back Warrick margin We And to traditional discussed we believe move that then the as the believe in higher to we've to the of aerospace we line those back at mix think products costs to move to those we general these really will defined a our And experienced. come us able output We once get to we're we get are expect XXXX, still ability deliver]. engineering execute new levels bring the that that saw to [can going the coat to back and

going these be some My just forward, quarter-over-quarter It revenue there. the added follow-up aero general value looks level pretty markets forward uplift? is that that meaningfully for we of pound different quarter-over-quarter. mix per across and about Would engineering, some packaging around your as XQ think a or levels there like change the up a end the good use look sort drove is to there of were

recognition a there, it's Well, good Emily.

versus are numbers, we've instance, playing the year. last of remember, And and We across through QX cost. looked half up these passing up for catch with board. been price cost in second at I the these

is force about value up So our revenue down shipments mainly last XX% XX%. due year. added were we versus to half majeure second the QX and in issue, But of the

is we've surcharge So right been moving prices doing commodity cost back prices in passing direction, this what in have successful been in only through. and not successful we very passing also the through

a there. have we lot a if these contracts the of all into in in costs. getting you customers brought successful portfolio, Warrick successful So is frame of for recovered resetting all What recall, had and those moving the we've basis pass of those which been costs the much in timelier a to those improving on and we through certain time recoup business. cost in have Warrick when annual components we in been could Not reset place quarterly but doing in with

pound. see bar actions per taken of it been and you in have have there start lot to that a So the place

some with And But a that. pass of certain associated amount just is of prices, we've commodity through there's is mix, all a there the is that incurred. not costs there on so mix that

you're Yes, down of In high there aerospace -- was for Trentwood a of looking our plate other Emily. extruded of note, is little because our a were per planned that but bar if aero a higher in at bigger commodity one just mix strength, pound, the the that quarter valued outage, being third products mix. as bit because piece

drove that of bar little So a bit that pound. per

high push Maybe you've follow-up Outside fair the be revenue just increases per lot able that quick a rather would aero sort and to really in pound then. just mix strength, than there component the related that added of sequential it in of to value surcharge say that a change been through? of price is quarterly demand maybe

Well, they'll certainly continue, Emily.

I our those with expect dip should place so we've fundamentally a customers, those wouldn't now because put continue. So in

little a and as through in costs increase, focused well. pricing area it's Now much certainly but differentiate margin those how on tough between just to that price we're conversion

can is expansion our And while GE pushing aero, that can that for automotive, quicker certainly we're price we take for contracts through, state can we will there And in margin looking state we some will new on new as into margin price just certainly And move turn over expansion through as we prices increase at aerospace more for place. you go as state So there some conversions. through that on increased conversion transactional, packaging. improvements that contracts. based there. on we're prices And is you be

very well. that mindful through moving as we're So of

I see queue. questions further And in no you. thank

Okay.

very today. our with being quarter everyone, and look to for fourth So you results on I us updating year much. Thank full forward February. next thanks, you

you ladies thank This And you, participating. and concludes gentlemen. thank conference. for our We

now may disconnect. You