Kaiser Aluminum(KALU) - 2024 Q2 - Quarterly Results

Executive Summary Kaiser Aluminum reported solid Q2 demand, particularly in aerospace, but financial results were impacted by a $9 million LIFO charge, leading to a revised 2024 outlook reflecting lower jet build rates and an extended facility outage Q2 2024 Key Financial Highlights | Metric | Value (in millions) | | :--- | :--- | | Net Sales | $773 | | Conversion Revenue | $369 | | Net Income | $3 | | Net Income per Diluted Share | $0.19 | | Adjusted Net Income | $11 | | Adjusted Net Income per Diluted Share | $0.65 | | Adjusted EBITDA | $54 | | Adjusted EBITDA Margin | 14.5% | - Management noted that while demand was strong, net income of $3 million and adjusted EBITDA of $54 million were negatively affected by a $9 million non-cash LIFO charge related to significant inventory reductions[4] - The company revised its 2024 financial outlook due to reduced commercial jet build rates and an extended outage at the Warrick facility during the second quarter[4] Financial Performance Q2 2024 financial performance declined year-over-year across key metrics, including net sales and adjusted EBITDA, primarily due to lower shipment volumes and operational challenges Consolidated Results In Q2 2024, consolidated net sales decreased to $773 million from $814 million in the prior-year period, driven by a 6% reduction in shipments, with net income dropping to $3 million compared to $18 million year-over-year, and adjusted EBITDA also declining by $10 million to $54 million Q2 2024 vs Q2 2023 Consolidated Results | Metric | Q2 2024 | Q2 2023 | Change | | :--- | :--- | :--- | :--- | | Shipments (millions of lbs.) | 297 | 314 | -5.4% | | Net Sales (in millions) | $773 | $814 | -5.0% | | Conversion Revenue (in millions) | $369 | $379 | -2.6% | | Net Income (in millions) | $3 | $18 | -83.3% | | Adjusted EBITDA (in millions) | $54 | $64 | -15.6% | | Adjusted EBITDA Margin | 14.5% | 16.8% | -230 bps | - The decrease in net sales was primarily driven by a 6% reduction in shipments compared to the prior year period[10] - Adjusted net income for Q2 2024 was $11 million ($0.65 per diluted share), a decrease from $20 million ($1.26 per diluted share) in Q2 2023[12] Segment Performance Q2 2024 segment performance varied, with aerospace showing resilience, packaging significantly impacted by an outage, and general engineering and automotive extrusions reporting modest growth Q2 2024 Conversion Revenue by Application (vs. Q2 2023, in millions) | Application | Net Sales | Conversion Revenue | Change in Conversion Revenue | | :--- | :--- | :--- | :--- | | Aerospace/High Strength | $226 | $133 | +2% | | Packaging | $312 | $119 | -11% | | General Engineering | $163 | $83 | Modest Increase | | Automotive Extrusions | $70 | $33 | +9% | - The 11% decrease in packaging conversion revenue was mainly due to an 11% reduction in shipments resulting from an unplanned outage at the Warrick facility[18] - Automotive extrusions conversion revenue increased by 9%, driven by a modest increase in shipments and improved pricing[18] Cash Flow and Liquidity As of June 30, 2024, the company maintained a strong liquidity position of $618 million with no outstanding revolving credit borrowings, while funding capital investments and returning capital to stockholders - As of June 30, 2024, total liquidity was $618 million, comprising $70 million in cash and $548 million in borrowing availability under the revolving credit facility[15] - In the first half of 2024, the company funded $74 million of capital investments and returned $25 million to stockholders via dividends[14] - A quarterly cash dividend of $0.77 per share was declared on July 15, 2024, payable on August 15, 2024[16] 2024 Outlook Kaiser Aluminum revised its full-year 2024 guidance, anticipating flat to 1% conversion revenue growth and improved adjusted EBITDA margins, reflecting a cautious aerospace outlook and packaging recovery Full Year 2024 Guidance | Metric | Outlook (vs. 2023) | | :--- | :--- | | Conversion Revenue | Flat to Up 1% | | Adjusted EBITDA Margins | Improve 50 to 100 basis points | - The near-term outlook for the commercial aerospace market is cautious due to lower than expected 2024 build rates, which will reduce anticipated shipments and conversion revenue[17] - Packaging shipments are expected to improve from levels that were negatively impacted by outages in the first half of 2024[17] Financial Statements and Reconciliations This section provides unaudited consolidated financial statements as of June 30, 2024, including income statements, balance sheets, cash flows, and reconciliations of GAAP to non-GAAP measures Statements of Consolidated Income The unaudited Statements of Consolidated Income show a net income of $3.1 million for Q2 2024, a significant decrease from $18.3 million in Q2 2023, primarily due to lower net sales of $773.4 million (vs. $814.1 million YoY) and an increase in restructuring costs to $6.8 million (vs. $1.2 million YoY) Q2 2024 Statement of Income Highlights (in millions) | Line Item | Q2 2024 | Q2 2023 | | :--- | :--- | :--- | | Net sales | $773.4 | $814.1 | | Operating income | $15.5 | $35.9 | | Income before income taxes | $3.9 | $21.3 | | Net income | $3.1 | $18.3 | Consolidated Balance Sheets As of June 30, 2024, the company's consolidated balance sheet showed total assets of $2.32 billion, a slight increase from $2.27 billion at year-end 2023, with total liabilities increasing to $1.65 billion from $1.62 billion, while total stockholders' equity rose to $662.0 million Balance Sheet Highlights (in millions) | Account | June 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $70.4 | $82.4 | | Inventories | $446.9 | $477.2 | | Total current assets | $1,010.5 | $990.2 | | Total assets | $2,315.7 | $2,267.4 | | Long-term debt, net | $1,040.7 | $1,039.8 | | Total liabilities | $1,653.7 | $1,615.2 | | Total stockholders' equity | $662.0 | $652.2 | Summary of Cash Flows For the six months ended June 30, 2024, cash provided by operating activities was $89.6 million, a significant improvement from $47.8 million in the same period of 2023, with cash used in investing activities increasing to $73.6 million, while cash used in financing activities was $28.0 million Six Months Ended June 30 Cash Flows (in millions) | Activity | 2024 | 2023 | | :--- | :--- | :--- | | Operating activities | $89.6 | $47.8 | | Investing activities | $(73.6) | $(67.7) | | Financing activities | $(28.0) | $(13.0) | Reconciliation of Non-GAAP Measures This section provides a detailed reconciliation from GAAP to non-GAAP measures, where for Q2 2024, GAAP operating income of $15.5 million was adjusted for $9.0 million in non-run-rate (NRR) items, including restructuring costs, to arrive at an adjusted operating income of $24.5 million, with adjusted EBITDA reaching $53.5 million after adding back depreciation and amortization Q2 2024 Reconciliation of GAAP Operating Income to Adjusted EBITDA (in millions) | Line Item | Q2 2024 | | :--- | :--- | | GAAP operating income | $15.5 | | Mark-to-market loss | $2.2 | | Restructuring costs | $6.8 | | Operating income, excluding operating NRR items | $24.5 | | Depreciation and amortization | $29.0 | | Adjusted EBITDA | $53.5 | Q2 2024 Reconciliation of GAAP Net Income to Adjusted Net Income (in millions) | Line Item | Q2 2024 | | :--- | :--- | | GAAP net income | $3.1 | | Operating NRR items | $9.0 | | Non-operating NRR items | $0.7 | | Tax impact of above NRR items | $(2.2) | | Adjusted net income | $10.6 | Supplementary Information This section provides additional investor information, including conference call details, business description, and important legal disclosures regarding non-GAAP financial measures and forward-looking statements - The company will host a conference call on Thursday, July 25, 2024, at 10:00 am (Eastern Time) to discuss its second quarter 2024 results[21] - The earnings release contains non-GAAP financial measures, including conversion revenue, adjusted EBITDA, and adjusted net income, which exclude non-run-rate items, and management uses these measures to monitor financial results and trends[24][25] - The press release includes forward-looking statements that are subject to various risks and uncertainties, and the company undertakes no duty to update them[26]