Kaiser Aluminum Corporation Reports Third Quarter and First Nine Months 2018 Financial Results
Third Quarter 2018 Highlights:
- Net Sales
$393 Million ; Value Added Revenue$205 Million - Net Income
$22 Million ; Adjusted EBITDA$47 Million ; Adjusted EBITDA Margin 23.1% - Moderating Headwinds from Aerospace Supply Chain Destocking
- Full Realization of Price Increases Implemented in Second Quarter 2018
- Temporary Tariff Costs Incurred on Internal Cross-border Transactions
- Completed Installation of Material Handling Equipment for Thin Gauge Plate at Trentwood
- Acquired Imperial Machine and Tool, a Leader in Multi-Material Additive Manufacturing
First Nine Months 2018 Highlights:
- Net Sales
$1.2 Billion ; Value Added Revenue$618 Million - Net Income
$68 Million ; Adjusted EBITDA$150 Million ; Adjusted EBITDA Margin 24.3% - Higher Underlying Metal and Freight Costs Had a Significant Adverse Impact on Margins
For the first nine months of 2018, the Company reported net income of
Third Quarter and First Nine Months 2018 Summary
“Third quarter 2018 results reflected higher aerospace shipments as supply chain destocking continues to moderate and from the full realization of price increases implemented in the second quarter 2018. Strong operating leverage and improved sales margins more than offset the temporary impact of tariffs on our internal cross-border shipments. We are awaiting government approvals of certain countermeasures that we have initiated to eliminate nearly all our cross-border tariff costs and retroactively recover costs incurred. Although the tariffs have negatively impacted short-term results, we continue to anticipate that the long-term impact to us will be neutral to slightly positive should the tariffs remain in place,” said
“During the quarter another significant portion of the Trentwood modernization project was completed with the installation of handling equipment at the light gauge plate furnace. Going forward, our focus will continue to be on implementing practice changes to extract the full benefit of the new equipment that will drive continuing improvements in efficiency, capacity and product quality.
“In addition, as previously announced, we recently made a
“The acquisition of IMT allows us to gain further insights into the potentially disruptive additive manufacturing technology, and enhances our ability to address customer needs by broadening our capability to provide innovative solutions for demanding applications. IMT has a steady EBITDA stream from its machining business, and we expect to achieve a return in excess of our cost of capital with significant upside potential for growth and leadership in the emerging additive manufacturing technology,” stated Mr. Hockema.
Third Quarter and First Nine Months 2018 Consolidated Results | |||||||||||||||||||
(Unaudited)* | |||||||||||||||||||
(In millions of dollars, except shipments, realized price and per share amounts) | |||||||||||||||||||
Nine Months Ended | |||||||||||||||||||
Quarterly | September 30, | ||||||||||||||||||
3Q18 | 1H18 Avg | 3Q17 | 2018 | 2017 | |||||||||||||||
Shipments (millions of lbs.) | 159 | 168 | 150 | 494 | 473 | ||||||||||||||
Net sales | $ | 393 | $ | 402 | $ | 333 | $ | 1,197 | $ | 1,044 | |||||||||
Less hedged cost of alloyed metal1 | (188 | ) | (195 | ) | (146 | ) | (579 | ) | (452 | ) | |||||||||
Value added revenue | $ | 205 | $ | 206 | $ | 187 | $ | 618 | $ | 593 | |||||||||
Realized price per pound ($/lb.) | |||||||||||||||||||
Net sales | $ | 2.48 | $ | 2.40 | $ | 2.22 | $ | 2.42 | $ | 2.21 | |||||||||
Less hedged cost of alloyed metal | (1.19 | ) | (1.17 | ) | (0.97 | ) | (1.17 | ) | (0.96 | ) | |||||||||
Value added revenue | $ | 1.29 | $ | 1.23 | $ | 1.25 | $ | 1.25 | $ | 1.25 | |||||||||
As reported | |||||||||||||||||||
Operating income2 | $ | 35 | $ | 36 | $ | 42 | $ | 107 | $ | 113 | |||||||||
Net income | $ | 22 | $ | 23 | $ | 20 | $ | 68 | $ | 61 | |||||||||
EPS, diluted3 | $ | 1.29 | $ | 1.37 | $ | 1.16 | $ | 4.03 | $ | 3.49 | |||||||||
Adjusted4 | |||||||||||||||||||
Operating income | $ | 36 | $ | 41 | $ | 33 | $ | 118 | $ | 122 | |||||||||
EBITDA5 | $ | 47 | $ | 51 | $ | 43 | $ | 150 | $ | 151 | |||||||||
EBITDA margin6 | 23.1 | % | 24.9 | % | 23.1 | % | 24.3 | % | 25.5 | % | |||||||||
Net income | $ | 24 | $ | 28 | $ | 16 | $ | 80 | $ | 68 | |||||||||
EPS, diluted3 | $ | 1.43 | $ | 1.64 | $ | 0.90 | $ | 4.72 | $ | 3.89 | |||||||||
1 Hedged cost of alloyed metal is our Midwest transaction price of aluminum plus the price of alloying elements plus any realized gains and/or losses on settled hedges, related to the metal sold in the referenced period. | |||||||||||||||||||
2 2017 restated to reflect the retrospective adoption of ASU 2017-07. | |||||||||||||||||||
3 Diluted shares for EPS calculated using treasury method. | |||||||||||||||||||
4 Adjusted numbers exclude non-run-rate items (for all Adjusted numbers and EBITDA refer to Reconciliation of Non-GAAP Measures). | |||||||||||||||||||
5 Adjusted EBITDA = Consolidated Operating Income before non-run-rate plus Depreciation and Amortization. | |||||||||||||||||||
6 Adjusted EBITDA margin = Adjusted EBITDA as a percent of Value Added Revenue. | |||||||||||||||||||
*Please refer to GAAP financial statements. | |||||||||||||||||||
Totals may not sum due to rounding. | |||||||||||||||||||
Third Quarter 2018
Net sales for the third quarter 2018 were
Value added revenue (net sales less the hedged cost of alloyed metal) for the third quarter 2018 increased 10% to
Consolidated operating income as reported was
Adjusted consolidated EBITDA of
First Nine Months 2018
Net sales for the first nine months of 2018 were
Value added revenue of
Consolidated operating income as reported was
Adjusted consolidated EBITDA of
Cash Flow and Balance Sheet
For the first nine months of 2018, in addition to funding normal operations, the Company funded
As of
Full Year 2018 Outlook
“For the full year 2018, we continue to anticipate mid-single-digit growth in shipments and value added revenue with adjusted EBITDA margin in the mid-20 percent range,” stated Mr. Hockema. “We expect continued underlying demand strength in the fourth quarter 2018 with moderating destocking in the aerospace supply chain and normal seasonality in industrial demand. Planned major maintenance expense in the fourth quarter is expected to be similar to the third quarter 2018; however, the one week of planned downtime for maintenance on the hot line and large stretcher at Trentwood that was previously planned for the fourth quarter 2018 has been re-scheduled for mid-2019.
“As we begin to look to 2019, we expect demand across our end markets to be strong. Although sales margins have improved, they remain at historical lows. We will continue to monitor market conditions to determine timing for further price increases to restore our sales margins to a level more reflective of the strong overall demand climate.
“Longer-term, we remain well-positioned in our served markets to capitalize on the secular demand growth for our aerospace and automotive applications and are encouraged by the growing demand for our general engineering products. In addition, we expect to continue to achieve steady improvement in manufacturing cost efficiency to further drive value for all of our stakeholders,” concluded Mr. Hockema.
Conference Call
Company Description
Available Information
For more information, please visit the Company's website atwww.kaiseraluminum.com. The website includes a section for investor relations under which the Company provides notifications of news or announcements regarding its financial performance, including
New Revenue Recognition Standard
The Company adopted ASC 606, the new revenue recognition accounting standard, during the first quarter 2018. For some of the Company's product sales, the past practice of recognizing revenue upon customer delivery is consistent with the new standard, and no change is necessary. However, for contract sales representing most of the Company's aerospace products and a substantial portion of its automotive products the new standard requires the Company to recognize revenue over time as manufacturing costs are incurred. The effect of this change in accounting standards is a timing issue. However, there could be variability in period-to-period comparisons, especially when comparing periods of 2018 under the new standard to 2017 and prior periods that reported results under the previous accounting standard. Adopting the new standard required a cumulative-effect adjustment to the Company’s opening balance sheet on
Non-GAAP Financial Measures
This earnings release contains certain non-GAAP financial measures. A “non-GAAP financial measure” is defined as a numerical measure of a company's financial performance that excludes or includes amounts so as to be different than the most directly comparable measure calculated and presented in accordance with GAAP in the statements of income, balance sheets, or statements of cash flow of the Company. Pursuant to the requirements of Regulation G, the Company has provided a reconciliation of non-GAAP financial measures to the most directly comparable financial measure in the accompanying tables.
The non-GAAP financial measures used within this earnings release are value added revenue, adjusted operating income, EBITDA, adjusted EBITDA, adjusted net income, and adjusted earnings per diluted share which exclude non-run-rate items and ratios related thereto. As more fully described in these reports, “non-run-rate” items are items that, while they may occur from period to period, are particularly material to results, impact costs primarily as a result of external market factors and may not occur in future periods if the same level of underlying performance were to occur. These measures are presented because management uses this information to monitor and evaluate financial results and trends and believes this information to also be useful for investors.
Forward-Looking Statements
This press release contains statements based on management's current expectations, estimates and projections that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 involving known and unknown risks and uncertainties that may cause actual results, performance or achievements of the Company to be materially different from those expressed or implied.
Investor Relations and Public Relations Contact: | |
Melinda C. Ellsworth | |
Kaiser Aluminum Corporation | |
(949) 614-1757 |
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES | |||||||||||||||
STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED) (1) | |||||||||||||||
Quarter Ended | Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
(In millions of dollars, except share and per share amounts) | |||||||||||||||
Net sales | $ | 393.1 | $ | 332.8 | $ | 1,196.5 | $ | 1,044.4 | |||||||
Costs and expenses: | |||||||||||||||
Cost of products sold, excluding depreciation and amortization and other items | 323.3 | 256.4 | 983.4 | 808.7 | |||||||||||
Depreciation and amortization | 11.0 | 10.2 | 32.4 | 29.3 | |||||||||||
Selling, general, administrative, research and development | 23.9 | 24.7 | 73.9 | 74.7 | |||||||||||
Goodwill impairment | — | — | — | 18.4 | |||||||||||
Other operating charges, net | — | — | 0.1 | — | |||||||||||
Total costs and expenses | 358.2 | 291.3 | 1,089.8 | 931.1 | |||||||||||
Operating income | 34.9 | 41.5 | 106.7 | 113.3 | |||||||||||
Other income (expense): | |||||||||||||||
Interest expense | (5.7 | ) | (5.3 | ) | (17.0 | ) | (16.4 | ) | |||||||
Other income (expense), net | 0.7 | (0.2 | ) | 0.3 | 0.5 | ||||||||||
Income before income taxes | 29.9 | 36.0 | 90.0 | 97.4 | |||||||||||
Income tax provision | (8.2 | ) | (16.1 | ) | (21.9 | ) | (36.8 | ) | |||||||
Net income | $ | 21.7 | $ | 19.9 | $ | 68.1 | $ | 60.6 | |||||||
Net income per common share: | |||||||||||||||
Basic | $ | 1.31 | $ | 1.18 | $ | 4.09 | $ | 3.55 | |||||||
Diluted2 | $ | 1.29 | $ | 1.16 | $ | 4.03 | $ | 3.49 | |||||||
Weighted-average number of common shares outstanding (in thousands): | |||||||||||||||
Basic | 16,573 | 16,834 | 16,654 | 17,072 | |||||||||||
Diluted2 | 16,783 | 17,160 | 16,882 | 17,363 | |||||||||||
Dividends declared per common share | $ | 0.55 | $ | 0.50 | $ | 1.65 | $ | 1.50 |
1 Please refer to the Company's Form 10-Q for the quarter ended September 30, 2018 for detail regarding the items in the table.
2 Diluted shares are calculated using the treasury stock method.
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES | |||||||
CONSOLIDATED BALANCE SHEETS (UNAUDITED) (1) | |||||||
September 30, 2018 | December 31, 2017 | ||||||
(In millions of dollars, except share and per share amounts) | |||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 94.3 | $ | 51.1 | |||
Short-term investments | 88.4 | 183.7 | |||||
Receivables: | |||||||
Trade receivables, net | 194.5 | 165.0 | |||||
Other | 24.4 | 15.5 | |||||
Contract assets | 51.0 | — | |||||
Inventories | 196.9 | 207.9 | |||||
Prepaid expenses and other current assets | 24.2 | 33.4 | |||||
Total current assets | 673.7 | 656.6 | |||||
Property, plant and equipment, net | 595.4 | 571.4 | |||||
Deferred tax assets, net | 42.2 | 72.0 | |||||
Intangibles and goodwill | 75.8 | 43.8 | |||||
Other assets | 38.9 | 41.4 | |||||
Total | $ | 1,426.0 | $ | 1,385.2 | |||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 120.4 | $ | 90.0 | |||
Accrued salaries, wages and related expenses | 35.1 | 42.6 | |||||
Other accrued liabilities | 37.0 | 40.5 | |||||
Total current liabilities | 192.5 | 173.1 | |||||
Net liabilities of Salaried VEBA | 31.8 | 31.9 | |||||
Deferred tax liabilities | 4.3 | 4.3 | |||||
Long-term liabilities | 64.7 | 60.0 | |||||
Long-term debt | 370.2 | 369.6 | |||||
Total liabilities | 663.5 | 638.9 | |||||
Commitments and contingencies | |||||||
Stockholders' equity: | |||||||
Preferred stock, 5,000,000 shares authorized at both September 30, 2018 and December 31, 2017; no shares were issued and outstanding at September 30, 2018 and December 31, 2017 | — | — | |||||
Common stock, par value $0.01, 90,000,000 shares authorized at both September 30, 2018 and at December 31, 2017; 22,471,628 shares issued and 16,547,237 shares outstanding at September 30, 2018; 22,393,537 shares issued and 16,773,586 shares outstanding at December 31, 2017 | 0.2 | 0.2 | |||||
Additional paid in capital | 1,057.4 | 1,055.9 | |||||
Retained earnings | 135.6 | 85.5 | |||||
Treasury stock, at cost, 5,924,391 shares at September 30, 2018 and 5,619,951 shares at December 31, 2017, respectively | (390.9 | ) | (358.6 | ) | |||
Accumulated other comprehensive loss | (39.8 | ) | (36.7 | ) | |||
Total stockholders' equity | 762.5 | 746.3 | |||||
Total | $ | 1,426.0 | $ | 1,385.2 |
1 Please refer to the Company's Form 10-Q for the quarter ended September 30, 2018 for detail regarding the items in the table.
Reconciliation of Non-GAAP Measures - Consolidated | ||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||
(In millions of dollars, except share and per share amounts) | ||||||||||||||||||||||||
Quarterly | ||||||||||||||||||||||||
3Q18 | 2Q18 | 1Q18 | 3Q17 | 2Q17 | 1Q17 | |||||||||||||||||||
GAAP net income | $ | 21.7 | $ | 20.7 | $ | 25.7 | $ | 19.9 | $ | 4.7 | $ | 36.0 | ||||||||||||
Interest expense | 5.7 | 5.7 | 5.6 | 5.3 | 5.5 | 5.6 | ||||||||||||||||||
Other (income) expense, net | (0.7 | ) | 0.5 | (0.1 | ) | 0.2 | 0.1 | (0.8 | ) | |||||||||||||||
Income tax provision | 8.2 | 7.8 | 5.9 | 16.1 | 2.2 | 18.5 | ||||||||||||||||||
GAAP operating income 1 | 34.9 | 34.7 | 37.1 | 41.5 | 12.5 | 59.3 | ||||||||||||||||||
Mark-to-market losses (gains) | 2.9 | 5.5 | 6.3 | (10.8 | ) | 11.9 | (15.1 | ) | ||||||||||||||||
Goodwill impairment | — | — | — | — | 18.4 | — | ||||||||||||||||||
Other operating NRR (gains) losses 1,2,3 | (1.4 | ) | 3.5 | (5.7 | ) | 2.1 | 1.6 | 0.5 | ||||||||||||||||
Operating income, excluding operating NRR items | 36.4 | 43.7 | 37.7 | 32.8 | 44.4 | 44.7 | ||||||||||||||||||
Depreciation and Amortization | 11.0 | 10.9 | 10.5 | 10.2 | 9.5 | 9.6 | ||||||||||||||||||
Adjusted EBITDA 4 | $ | 47.4 | $ | 54.6 | $ | 48.2 | $ | 43.0 | $ | 53.9 | $ | 54.3 | ||||||||||||
GAAP net income | $ | 21.7 | $ | 20.7 | $ | 25.7 | $ | 19.9 | $ | 4.7 | $ | 36.0 | ||||||||||||
Operating NRR Items 1 | 1.5 | 9.0 | 0.6 | (8.7 | ) | 31.9 | (14.6 | ) | ||||||||||||||||
Non-Operating NRR Items 1 | 1.5 | 1.5 | 1.5 | 1.7 | 1.1 | (0.2 | ) | |||||||||||||||||
Tax impact of above NRR Items | (0.8 | ) | (2.8 | ) | (0.5 | ) | 2.6 | (12.4 | ) | 5.5 | ||||||||||||||
Adjusted net income | $ | 23.9 | $ | 28.4 | $ | 27.3 | $ | 15.5 | $ | 25.3 | $ | 26.7 | ||||||||||||
GAAP earnings per diluted share 5 | $ | 1.29 | $ | 1.22 | $ | 1.51 | $ | 1.16 | $ | 0.27 | $ | 2.04 | ||||||||||||
Adjusted earnings per diluted share 5 | $ | 1.43 | $ | 1.68 | $ | 1.60 | $ | 0.90 | $ | 1.47 | $ | 1.52 | ||||||||||||
1 2017 restated to reflect the retrospective adoption of ASU 2017-07. | ||||||||||||||||||||||||
2 NRR is an abbreviation for Non-Run-Rate; NRR items are pre-tax. | ||||||||||||||||||||||||
3 Other operating NRR items primarily represent the impact of non-cash net periodic benefit cost (income) related to the salaried VEBA, adjustments to plant-level LIFO, lower of cost or market, environmental expenses, workers' compensation cost (benefit) due to discounting and impairment losses. | ||||||||||||||||||||||||
4 Adjusted EBITDA = Consolidated Operating Income before non-run-rate plus Depreciation and Amortization. | ||||||||||||||||||||||||
5 Diluted shares for EPS calculated using treasury method. | ||||||||||||||||||||||||
Source: Kaiser Aluminum Corporation