KALU - Earnings call transcript Q4 2019 | Kaiser Aluminum Corporation

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Operator

Ladies and gentlemen, thank you for standing by and welcome to the Kaiser Aluminum Fourth Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions].

As a reminder, today's program maybe recorded.

to President host Corporate of like Melinda today's Communications. now Vice Ellsworth, Investor would introduce for your program, I Relations and Please go ahead.

Melinda Ellsworth

fourth afternoon to earnings Good and call. quarter Aluminum's conference you. XXXX and Thank full-year everyone Kaiser welcome

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

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

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

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

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

the we've in posted At included the Reconciliations to the today call will rate in excludes discussion. of GAAP means for our the company's are reference financial which the non-run our open the measures we Appendix. to questions. the earnings EBITDA, in the which In information addition, in release presentation, non-GAAP for Any EBITDA have discussion we comparable conclusion of financial and adjusted presentation. reconciliations included items, Appendix most in

to turn to Jack? like Jack I over call Hockema. the now would

Jack Hockema

today. Welcome Melinda. to call joining the on everyone Thanks, us

at second and Trentwood fourth of model Motors results. achieved the half, planned in XXXX number downtime impact quarter in significant These of second the half the and despite half, We the and a reported year. were automotive results the unplanned first strong record General and during full-year changeovers strike

demand strong airframe Countering a the chain provided aerospace in the environment supportive supply The non-contract military build. products. and pricing market was by general headwinds, restocking demand growing commercial and on strong driven aerospace engineering aerospace for

a impact of net Turning These including Motors adjusted important number X, half. record first to milestones from adjusted we added record million Slide despite the a the and $XX per earnings downtime revenue, XXXX of and in financial Trentwood and in strike share. second EBITDA approximately recap milestones, were combined achieved and value the EBITDA, results, record General income achieved half

reduced we model addition, inefficiency automotive a from in In of experienced significant changeovers XXXX. sales manufacturing and number

credit Capitalizing attractive markets, will We our operational economic long-term successfully to that debt financial two This the strategic and our proactive position. ensuring cycles. on initiatives, new were we given any throughout continued business financial financial financings support flexibility our strength investment liquidity. completed increased enhance enhanced

and Trentwood for labor In addition, two Newark, agreement at finalized extends facilities that through in we largest XXXX recently new Ohio. a our

year Our long-term in increase to the in XXXX business for confidence the dividend. the continued increase early quarterly reflected our marking dividend from X% XX% in increased outlook ninth is the up we by our quarterly consecutive have our decision that

value and record a was XXXX X. Slide year added our revenue. to for Turning aerospace shipments

F/A-XX Fighter, aerospace our other bolstered XXXX, FXX demand aerospace and shipments book situation military Although applications. Super spending, our increased Strike order by the in for Joint the and Hornet, will XXX impact MAX the is defense

any added XXXX previous these to For XXXX, applications. XXXX exceed revenue shipments than in single-digit in despite other highs XXXX, record expect a year the for from percent value reduction we

X. Turning Slide to

and new delays similar as programs the we we automotive by the build difficult In double-digit late come XXXX rates expected impacted unexpected North year. a XXXX expect expect Motors for General our year XXXX, As and our model growth program on automotive by shipments in to stream. applications and American exacerbated in was changeovers strike numerous the year-over-year

for that expect relief chain half. driven Slide general second engineering lower suppressed these Strong XX. strong second shipments applications, destocking we demand portion supply demand of semiconductor our pricing and to applications aerospace in chain and XXXX, plate reallocation destocking in the XXXX capacity driven our in to supply In the from strong the demand by half. Turning by meet offset a by of

allocation aerospace products. In demand general plate to the addition, reduced to engineering related capacity enable our increased will MAX XXX

We that will XXXX. pricing support in continue expect to market the environment favorable the conditions we experienced

Slide to in decline and extrusion continued to non-core to continue XX% we expect XX. more decline Shipments applications XXXX a strategic XXXX applications. to capacity for Turning we allocate as in

is in year-over-year decline a and product this our of represents portion X.X% While shipments XX% revenue a decline about small mix, in total. a value-added

Moving to Slide outlook. XX, XXXX of summary a and our

Boeing the and added military, situation will higher shipments XXXX shipments from impact be engineering value automotive offset by the low and in general a increase resulting that MAX both expect in XXX revenue. single-digit We year-over-year

at to full-year with gains support continuing our environment expected EBITDA value We with to Trentwood. record with market achieve strong in EBITDA also pricing, efficiency added a expect XX% automotive operations margin along above and

XX, Slide our plans. to and Moving spending capital

we of near have treat at In or or despite the curtailment at XXX investments throughout plate, builds. that tripled capacity at continue XXXX. to communicated heat XXXX since temporary we Trentwood Trentwood for to capacity has expect XXXX, near As MAX operate operated capacity nearly despite

has MAS result will we aerospace XXX the the While be expect for demand demand implications, long-term applications. pent-up commercial short-term global

operational our for project long-term a products, Trentwood. at we million launch and strong of in security anticipation plate In multi-year $XXX growth investment XXXX, will expansion heat treat demand

operational when heavy load million security The our and in efficiency, for plate gauge $XXX plate at gauge new heavy is in than stretcher a flow. at capacity, critical new a we was operated increased that relieve provide the step plate this anticipated existing developed redundancy, million is initiative will XXXX far in $XXX process module project Trentwood. that first stretcher production the The greater the levels stretcher will on

and and expect Timing stretcher of as complete project to XXXX including quality, in $XXX capacity increase plate of smaller XX% an modules $XXX million million capital CapEx enhanced XXXX. production other the addressing general full-program benefits we are spending million approximately other planned by aerospace investments upon treat inventory the although $XXX the well $XX spending quality, costs, engineering remaining is $XXX new investment approximately efficiency. plus processing depend projects. million plate from and for currently market to the million will as efficiency, sustaining full within bottlenecks plus heat Expected conditions

XXXX detail now I'll results. Neal? to turn additional to the Neal provide regarding

Neal West

Jack. Thanks,

value and revenue the XXXX of by strong for $XXX offset increase value XX, pricing, added partially or Slide general driven shipments. and order to book million X% prior-year full-year reflected the million lower aerospace added strong a Turning from automotive by a record $XX engineering

year-over-year $XX revenue increase XX% reflecting contributed a increase million and incremental shipment. in Aerospace/high strength in a value added an XX%

a Value aerospace value of by in pricing added as strong general meet engineering impact added offset revenue lower engineering strong XXXX applications of shipments the for XX% to capacity was demand. allocation the decrease plate with primarily flat general shipments on essentially driven

and revenues declined delays due shipments a XX% Automotive programs transition value in end-of-life from to added launches. XX% in reduction new program on

redirect XX% down and million by on non-strategic for a XX% shipment, Value business approximately applications. added or categories exit was more noted a other $X capacity Jack, as strategic in continue as reduction revenue to to we

business fourth automotive weakening for applications revenue Value quarter engineering added in trends. quarter chain million was general also impacted the was Motors similar added Value our reflected demand our and and XXXX by full-year $XXX General of supply the strike. revenue reflecting industrial destocking further

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

downtime, approximately labor to costs approximately increasing $XX related $X GM in transitions. to the program $X and to the impact for the agreement, with addition million the to the than prior-year. associated with the million our XX. was XXXX and strike, USW pricing ratification more a costs our new the approximately or Turning to X% million non-contract automotive five-year Strong Slide aerospace and compared of offset million EBITDA full-year related negative of products of higher $XXX associated record other $X inefficiencies Trentwood business on for million, demand

a reflected the approximately million full-year agreement GM as quarter, margin higher $X of for quarter previously comparable labor XX.X% XXXX new to headwinds, noted. Despite XXXX the and Fourth XXXX strong EBITDA the strike $XX slightly combined of fourth impact very from to EBITDA related XX.X% the while was the prior-year. million, these than

Adjusted the Moving XXXX. non-run for $XX to to approximately on in net income $XXX of to Reported XXXX. the both items senior acquisition Imperial $XXX adjusted to a of included compared approximately Tool. impairment for in fourth income XXXX X.XXX% net charge in approximately income to charge our rate for million XXXX income Slide quarter million increased goodwill XXXX XX. retirement Reported periods, million the $XX notes XXXX & an net $XX million for related adjusted to impacts million X% Machine related pre-tax million $XX was unsecured net of and compared non-cash of of full-year early

range. an rate effective allowance. offset of in rate by certain rate XX%, state be we blended was state our compensation mid-XX% tax Long-term, in our will reflecting reduced Federal XX%, by executive to tax approximately which XXXX, and partially our credit, increase R&D for was rate a continue valuation For effective federal believe primarily tax a tax and

and single-digits other was as we in credits. tax cash low NOLs continue Our to tax rate our XXXX utilize for a

cash available rate million credits in low federal tax single-digits $XXX tax respectively. million Our of and will the until our we $XX remain approximately NOLs consume and

per quarter share $X.XX and noted. in XXXX $X.XX in Reported earnings fourth diluted As diluted earnings $X.XX after-tax charges from and impact $X.XX earnings were XXXX. the reflected share share and diluted XXXX per previously $X.XX respectively. Adjusted XXXX XXXX reported, per were in for

$XX down Turning VAR million to of associated net non-cash notes the discussed. quarter, while to was strike impairment labor and previously quarter $XXX fourth XXXX, up reflect new USW the and to the briefly senior reported the loss our of with touching primarily The EBITDA compared period, retirement charges XX, the due loss costs million slightly and on of share early as and was goodwill per Slide prior-year agreement. prior-year from our GM

during share to investments, approximately improved of and XX. interest, our approximately dividends, from capital of working Adjusted including and requirements of all $XX million cash Turning year million the million Slide other repurchases. $XX funded EBITDA capital $XXX

financial flexibility strength strengthened refinancings, XXXX, and significant During a two and we quarter completing our credit successfully senior the notes. revolving facility further fourth

in lending commitment Our than facility. provided pricing and favorable new credit secured the the million increased million $XX flexibility more and greater facility senior $XXX maturing by XXXX previous

refinanced new maturing million in $XXX $XXX X.XXX% XXXX, the in million. XXXX net $XXX million proceeds providing X.XXX% notes The of maturing senior senior notes

ongoing the business to economic cash return liquidity manage and initiatives through our We continue cycles. to shareholders and and growth support to our business

than more total and total cash availability $XXX million XXXX, credit $XXX investments of year-end approximately million million. facility At undrawn. short-term liquidity revolving remains facility provided our of and of borrowing $XXX on The

Turning Slide XX. to

During in allocate first a focus was a the our with business. $XX Capital to disciplined spending year, our in we capital on million. in manner reinvesting XXXX continue

plan in sustaining capital be to mentioned, the spending capital new across spending our XXXX, our to platform. implement $XXX Jack in related million million As will Trentwood in and ongoing investment primarily quality, we to expect begin addition stretcher $XXX we and to and expansion to efficiency,

XXXX, our most paid each to to our a early which dividend XXXX. quarterly share, And Since have announced we we in continued was recently, increase $X.XX first per XX% February in quarter year. increase dividends

of of XXXX, our to million we mentioned, previously million $XX.XX share. disciplined to a year-end shareholders under of average common also repurchased further our stock remained our through repurchase share for In distribute $XX weighted at available cash board price per for existing share XXXX. as repurchases $XXX Approximately As we shares authorization program. XXX,XXX continue

turn the summary I'll call comments. to for now And Jack Jack? over back

Jack Hockema

Neal. Thanks,

to to earnings and comments adjusted a curtailment record income In summary XXX revenue, achieve growth margin. shipments, net in expect expect EBITDA per Turning today. adjusted added MAX headwinds, Slide achieved EBITDA, and added we XXXX. XX share value of despite production Despite XXXX, value we record we adjusted our revenue and shipments year-over-year Boeing and the

and launching Trentwood aerospace to applications a to As automotive program needs. secular at address we growth be multi-year continued expect $XXX expansion we and demand our prepared look long-term million customer longer-term, we're for

further drive In we to expect all efficiency for to steady addition, improvement of our underlying stakeholders. continue in value manufacturing cost

growth and sustainability balance deployment cash support capital industry Our through our strong will flow sheet priorities and provide cycles. generation and

questions. call will the open for We now

Operator

[Operator Instructions].

Our first Matt Sachs. question the line of Korn Goldman from from comes

Your question please.

Matt Korn

everything with the hear to next to great Great optimism year hear. regarding going on,

how ask me you Trentwood, Let appreciate from always the $XX million this, from things articulate expected the we million like GM. effects $X from

to heard from from you on you drag out expect VAR are today? you rates? end What quantify given all the moving as and pieces, and year-over-year or the Now even consensus in if suppliers things Boeing look would there being emerging able some up we've the MAX be to build at there other EBITDA

Jack Hockema

of And second we that down go any not single-digits said record we We're or to to we than still shipments going but revenue from No. had that added to last year. the value is year and detail. that better the XXXX. expect year, level since this other strongest to be year be it's second had aerospace What we've going

it's single-digits in aero and So total.

Matt Korn

Got And the that type military the your would volumes all or in terms did through product to really bump demand relative there a it, took look you particularly over the represent aero there volumes on much you your tailwind? particular that then as then, -- high-strength more any break VAR? you X, and all stands main highlight to history. right. the when what we year? off in Slide deck market in out, out of Could And continue Is

Jack Hockema

going Keith let I'm question. Yes, Harvey to that address

Keith Harvey

extruded in Yes, plate our as thank quite in but indications alloy Well, Trentwood the products our the Alexco business our here frankly, from saw out we year. products operation. good in you rolling Definitely on our numbers then shapes also XXXX. all stronger on aerospace saw mill, alloy we of hard increase saw related overall, last business our of in And year-over-year really hard you.

Matt Korn

automotive the all And great. in we the just through on right, bumps last are speed All platform? changeovers from then me, effectively the

Jack Hockema

that, of address being Keith I'm let I'll tired wrong.

Keith Harvey

whole we've as indication stopping discussion expect XXXX strong articulated year, very the old regard a we to multiple year programs, of really throughout year new launching. interesting strong with programs earlier, programs Well, all last an automotive, as But new launches throughout Jack year. planned and we and heard for had the with in with got you

those We starting slow programs launch late they the started some And XXXX. those also of were year, had XXXX. in ramps that as their we're we see as to impact begin discussed last to early

Operator

you. Thank

comes the Martin question Englert line Our from Jefferies. of next from

Your question please.

Martin Englert

the to maybe trend half? guidance would thinking lead expect high-strength scenario half wherein the should given the Or aero single-digit the is continued volumes be then year longer year-on-year first declines the some the about a full-year? a it growth throughout of When time of for throughout and we during XXXX nominations, your second decline some over volume expected quarterly

Neal West

this The actually expect last XXX discussions the strong fairly part year and were regarding we in all with Boeing taking the QX. Well, shipments of of place of second year. half early

and We have runway you what time throughout of so that and expected the see alter expect be some of shipments to year. now will period a would change the of what clear in

-- the with military we Jack along Boeing, on of the our side on also picked-up, the have business. However as mentioned,

seeing the then engineering bolstered we're our that's So early in ramp-up we've also noticed And general by that plate. all been on. strong beginning of course, demand

Martin Englert

Okay.

here, through positive year-on-year quarter aero/high-strength see still we fourth year-on-year? to start second throughout cadences single-digit but equating declines volumes see the we declines to that the in maybe then So and first quarter

Neal West

it's the Well, We're some point along by quarter Boeing working the releases. as they at the give this impacts it with we've military, of to tough worked. with schedule the of want how and the to ramp-up with

I So full-year lower at single-digit have this that but really we're the anticipating than granularity XXXX. don't time

Martin Englert

down with concerns the key in then the here saw plate and of we past channel often some it's is accounting curtailment that body, for mix one when MAX guidance things for some in that that what's And the your aero sense destocking. the there's and been such today? adjusting narrow perhaps account that inventory delayed Okay. here to shipments already the wide-body resulted And changes with road shift your is subsequent or you're impact in from demand, destocking to results some the

Jack Hockema

that's strong and aerospace Clearly last This Boeing late again. at year, when is restocking curtailed continued the Jack pace. this the they record a the shipments call year. shipments And said the and on last production the we generated last what because

they're So that the of stated aware destocking supply importance some many they've and in certain they are but making really times, of publicly supply the there chain as many, chain. has don't be damage chain the to Boeing here the supply

may see demand we don't to expect ramp-up, less we really point implications. going real we're at begin when than while some severe So to they that see

Martin Englert

Okay.

like for its for it accounted largely sounds So guidance your in here volume year, correct? the

Jack Hockema

Yes.

Martin Englert

then that? EBITDA around framed detail much us Okay. quarters, or that Understood. up par you prior-quarter, maybe quarterly's than to or prior-year, And worse you can I prior want the don't know but in better expected too any on provide you some helped get the into

Jack Hockema

said, first Keith positive no but as just No, expecting pretty we're detail, a quarter.

Martin Englert

appreciate congratulations of record the results headwinds. the on and Excellent. Okay. in the all I detail light

Jack Hockema

Thanks.

Operator

Thank you.

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

Your hearing have still not question Instructions]. you please. dropped. Curt, on your phone Curt, we're you. mute. Seems have [Operator to might

Our next Sullivan question comes from from Josh the line of Benchmark Company.

please. question Your

Josh Sullivan

longer-term had I kind something of those see to Kaiser effect. or a your along I you lines. program believe want XXXX strategy in

clearly that curious future. includes in any a you're looks know does strategic hit success in longer-term Just commitment if thinking into outlook? Kaiser I how But of that fits reinvesting Trentwood. investment lot large in It changes could just the the curious outlook? like what

Jack Hockema

little there. a you broke Yes, up bit

Melinda Ellsworth

Talking in terms change how strategy? that, any [indiscernible] talked vision, things [indiscernible] do we of in project about

Jack Hockema

past brown last years to and year, that and XX years some and we strategy. came no ideas there up XX Yes, pushed give out demand is and looked really We've think with talked calls, looked the change and couple ourselves us opportunities XX where XX site got out. satisfy this out we our really in team creative innovative about of for earlier expansion

plans beyond next the grow first continue We X this marketplace. the Phase just becomes tranche X. to to a plans beyond really is over three well Phase program expansion the two We've million of or got now decades with like got $XXX what this well So that.

Josh Sullivan

Got the so, into year we should kind just over specifically, or stretcher think it. reduced think feathering And then next maintenance? investments contribution we what margin that on how should the operations about of or of

Jack Hockema

won't Well, But By our one particular gives the impact. security it both goes It itself, efficiency stream today. this it preponderance number XXXX. be until some stretcher primary major our and plate, operational investment, of aerospace us a margin benefits. on the attributes won't of engineering one have because and general some through quality

important be for two years. the a then there having or is in stretcher stretcher needed another the stretchers won't next And purposes. XX So redundancy operational security the component, is of second XX

So it gives major one investment. for this capacity us growth long-term

Josh Sullivan

All right, thank you.

Keith Harvey

Also, that this might capability. is to more stretcher. going than that It's increase the current Keith. stretcher note additional we're XX% also roughly I gives a force us on pulling install our some

So we customer some opportunity open up to more expect us base. to that with our

Operator

does you. of hand I'd any like the for the This today's Hockema question-and-answer Thank remarks. conclude session to back further program. Jack to program

Jack Hockema

us on first joining Okay. our the Thanks call April. forward we quarter call and to everyone for updating during in you you. look Thank

Operator

ladies you, does and This program. the gentlemen your conference. Thank conclude participation today's for in

Good disconnect. now may You day.

Kaiser Aluminum (KALU) 20 Feb 202019 Q4 Earnings call transcript