Kaiser Aluminum Corporation Reports Fourth Quarter and Full Year 2018 Financial Results
Fourth Quarter 2018 Highlights:
- Shipments Up 4% Year-over-Year
- Net Sales
$389 Million ; Value Added Revenue$210 Million , Up 8% Year-over-Year - Net Income
$24 Million , Earnings per Diluted Share$1.41 - Adjusted Net Income
$30 Million , Adjusted Earnings per Diluted Share$1.77 - Adjusted EBITDA
$55 Million ; Adjusted EBITDA Margin 26.0%
Full Year 2018 Results and Business Environment:
- Aerospace Supply Chain Destocking; Growing Underlying Aerospace Demand
- High Contained Metal and Freight Costs
- Record Shipments Up 4% Year-over-Year
- Net Sales
$1.6 Billion ; Record Value Added Revenue$828 Million , Up 5% Year-over-Year - Net Income
$92 Million , Earnings per Diluted Share$5.43 - Record Adjusted Net Income
$109 Million and Adjusted Earnings per Diluted Share$6.48 - Adjusted EBITDA
$205 Million ; Adjusted EBITDA Margin 24.7%
Full Year 2018 Management Summary
“Kaiser delivered excellent results in 2018, consistent with the outlook communicated at the beginning of the year and despite persistent headwinds from aerospace supply chain destocking, high contained metal and freight costs and Section 232 tariffs,” said
“For the full year 2018 we achieved record shipments, up 4% year-over-year, and value added revenue, up 5%, driven by strong demand. Record commercial airframe builds drove underlying demand growth, and aerospace supply chain destocking began moderating in the second half 2018, further enhancing demand growth. Aluminum extrusion content continued to increase on solid North American automotive builds, and demand for general engineering and industrial products remained strong throughout the year with normal second half seasonal weakness. Adjusted EBITDA improved
Consistent with the Company’s capital allocation priorities, organic investments of
The Company continued to return cash to shareholders during the year through quarterly dividends and share repurchases that totaled nearly
In late 2018, the Company received approval for its Bellwood facility in
“Our second half 2018 results were a record for the last six months of a year,” said Mr. Hockema. “Aerospace supply chain destocking began to moderate, and underlying commercial airframe demand was strong as build rates continued to grow. In addition, we realized the full impact of proactive price increases implemented during the second quarter of 2018. We have initiated additional price increases in 2019 for certain non-contract general engineering and aerospace applications and, with growing demand and improving prices, we have positive momentum as we begin 2019.”
Fourth Quarter and Full Year 2018 Consolidated Results | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(Unaudited)* | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(In millions of dollars, except shipments, realized price and per share amounts) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Twelve Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Quarterly | December 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
4Q18 | 3Q18 | 4Q17 | 2018 | 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shipments (millions of lbs.) | 159 | 159 | 153 | 652 | 626 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net sales | $ | 389 | $ | 393 | $ | 353 | $ | 1,586 | $ | 1,398 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Less hedged cost of alloyed metal1 | (179 | ) | (188 | ) | (159 | ) | (758 | ) | (611 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Value added revenue | $ | 210 | $ | 205 | $ | 194 | $ | 828 | $ | 786 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Realized price per pound ($/lb.) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net sales | $ | 2.46 | $ | 2.48 | $ | 2.31 | $ | 2.43 | $ | 2.23 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Less hedged cost of alloyed metal | (1.14 | ) | (1.19 | ) | (1.04 | ) | (1.16 | ) | (0.97 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Value added revenue | $ | 1.32 | $ | 1.29 | $ | 1.27 | $ | 1.27 | $ | 1.26 | ||||||||||||||||||||||||||||||||||||||||||||||||||
As reported | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating income | $ | 37 | $ | 35 | $ | 40 | $ | 144 | $ | 151 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Net income (loss) | $ | 24 | $ | 22 | $ | (15 | ) | $ | 92 | $ | 45 | |||||||||||||||||||||||||||||||||||||||||||||||||
EPS, diluted2 | $ | 1.41 | $ | 1.29 | $ | (0.90 | ) | $ | 5.43 | $ | 2.63 | |||||||||||||||||||||||||||||||||||||||||||||||||
Adjusted3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating income | $ | 43 | $ | 36 | $ | 37 | $ | 161 | $ | 159 | ||||||||||||||||||||||||||||||||||||||||||||||||||
EBITDA4 | $ | 55 | $ | 47 | $ | 48 | $ | 205 | $ | 199 | ||||||||||||||||||||||||||||||||||||||||||||||||||
EBITDA margin5 | 26.0 | % | 23.1 | % | 24.6 | % | 24.7 | % | 25.3 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | $ | 30 | $ | 24 | $ | 20 | $ | 109 | $ | 88 | ||||||||||||||||||||||||||||||||||||||||||||||||||
EPS, diluted2 | $ | 1.77 | $ | 1.43 | $ | 1.22 | $ | 6.48 | $ | 5.09 | ||||||||||||||||||||||||||||||||||||||||||||||||||
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 Diluted shares for EPS calculated using treasury method. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3 Adjusted numbers exclude non-run-rate items (for all Adjusted numbers and EBITDA refer to Reconciliation of Non-GAAP Measures). | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
4 Adjusted EBITDA = Consolidated Operating Income before non-run-rate plus Depreciation and Amortization. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
5 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. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fourth Quarter 2018
Net sales for the fourth quarter 2018 were
Value added revenue (net sales less the hedged cost of alloyed metal) for the fourth quarter 2018 increased 8% year-over-year to
Adjusted consolidated EBITDA of
Net income for the fourth quarter 2018 was
Full Year 2018
Net sales for full year 2018 were
Full year 2018 value added revenue of
Adjusted consolidated EBITDA of
For the full year 2018, the Company reported net income of
Cash Flow and Balance Sheet
Adjusted EBITDA of
As of
2019 Outlook
“As we look to our outlook for aerospace/high strength applications, we expect growing build rates and further moderation in commercial aerospace supply chain destocking as airframe manufacturers continue to address the ongoing greater than 8-year order backlog. In addition, the recent increase in defense spending from U.S. allies strengthens the outlook for the F-35 Joint Strike Fighter program, the F/A-18 Super Hornet, and other military applications,” said Mr. Hockema.
“For our automotive extrusion applications, 2019 North American build rates are expected to be slightly lower than 2018. As previously mentioned, 2019 is expected to be a transition year as we have many existing programs reaching end of life and a number of new program launches throughout the year. New program launches are inherently unpredictable due to timing in the launch of the new vehicle for which we are a supplier as there a multitude of other suppliers and processes for the automotive manufacturers to qualify, in addition to uncertainty of market sentiment and consumer acceptance of the new vehicles.
“We are cautiously optimistic about underlying demand for our general engineering products, despite uncertainty around global trade negotiations and economic conditions. As we look forward, we expect continuing strong demand and pricing for our applications," said Mr. Hockema
As previously indicated during the Company’s third quarter 2018 earnings call, significant maintenance activity is planned for the casting complex, hot line and large stretcher at its Trentwood facility. The planned outage is scheduled to occur in the second quarter 2019. Based on previous experience involving similar maintenance outages, the Company estimates an EBITDA impact of approximately
Overall, for the full year 2019, the Company expects strong demand to support a low to mid-single digit percent increase in both shipments and value added revenue year-over-year. The Company also expects EBITDA as a percentage of value added revenue to be above 25% in 2019, with higher shipments and improved pricing more than offsetting the impact of the Trentwood maintenance outage. Total capital spending in 2019, is expected to be approximately
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
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 (1)
Year Ended December 31, | ||||||||||||||||||||||||||
2018 | 2017 | 2016 | ||||||||||||||||||||||||
(In millions of dollars, except share and per share amounts) | ||||||||||||||||||||||||||
Net sales | $ | 1,585.9 | $ | 1,397.5 | $ | 1,330.6 | ||||||||||||||||||||
Costs and expenses: | ||||||||||||||||||||||||||
Cost of products sold: | ||||||||||||||||||||||||||
Cost of products sold, excluding depreciation and amortization and other items | 1,300.7 | 1,085.9 | 1,000.8 | |||||||||||||||||||||||
Lower of cost or market inventory write-down | — | — | 4.9 | |||||||||||||||||||||||
Depreciation and amortization | 43.9 | 39.7 | 36.0 | |||||||||||||||||||||||
Selling, general, administrative, research and development | 96.3 | 97.5 | 105.0 | |||||||||||||||||||||||
Goodwill impairment | — | 18.4 | — | |||||||||||||||||||||||
Other operating charges, net | 1.4 | 0.8 | 2.8 | |||||||||||||||||||||||
Total costs and expenses | 1,442.3 | 1,242.3 | 1,149.5 | |||||||||||||||||||||||
Operating income | 143.6 | 155.2 | 181.1 | |||||||||||||||||||||||
Other expense: | ||||||||||||||||||||||||||
Interest expense | (22.7 | ) | (22.2 | ) | (20.3 | ) | ||||||||||||||||||||
Other expense, net | (0.9 | ) | — | (13.6 | ) | |||||||||||||||||||||
Income before income taxes | 120.0 | 133.0 | 147.2 | |||||||||||||||||||||||
Income tax provision | (28.3 | ) | (87.6 | ) | (55.5 | ) | ||||||||||||||||||||
Net income | $ | 91.7 | $ | 45.4 | $ | 91.7 | ||||||||||||||||||||
Net income per common share: | ||||||||||||||||||||||||||
Basic | $ | 5.53 | $ | 2.67 | $ | 5.15 | ||||||||||||||||||||
Diluted2 | $ | 5.43 | $ | 2.63 | $ | 5.09 | ||||||||||||||||||||
Weighted-average number of common shares outstanding (in thousands): | ||||||||||||||||||||||||||
Basic | 16,585 | 16,996 | 17,813 | |||||||||||||||||||||||
Diluted2 | 16,874 | 17,259 | 18,033 |
1 Please refer to the Company's Form 10-K for the year ended December 31, 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 (1)
December 31, 2018 |
December 31, 2017 |
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(In millions of dollars, except share and per share amounts) |
||||||||||||||||
ASSETS | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 125.6 | $ | 51.1 | ||||||||||||
Short-term investments | 36.7 | 183.7 | ||||||||||||||
Receivables: | ||||||||||||||||
Trade receivables, net | 179.8 | 165.0 | ||||||||||||||
Other | 25.6 | 15.5 | ||||||||||||||
Contract assets | 54.9 | — | ||||||||||||||
Inventories | 215.1 | 207.9 | ||||||||||||||
Prepaid expenses and other current assets | 18.9 | 33.4 | ||||||||||||||
Total current assets | 656.6 | 656.6 | ||||||||||||||
Property, plant and equipment, net | 611.8 | 571.4 | ||||||||||||||
Deferred tax assets, net | 35.9 | 72.0 | ||||||||||||||
Intangible assets, net | 32.4 | 25.0 | ||||||||||||||
Goodwill | 44.0 | 18.8 | ||||||||||||||
Other assets | 38.6 | 41.4 | ||||||||||||||
Total | $ | 1,419.3 | $ | 1,385.2 | ||||||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable | $ | 121.4 | $ | 90.0 | ||||||||||||
Accrued salaries, wages and related expenses | 40.1 | 42.6 | ||||||||||||||
Other accrued liabilities | 44.0 | 40.5 | ||||||||||||||
Total current liabilities | 205.5 | 173.1 | ||||||||||||||
Net liabilities of Salaried VEBA | 32.4 | 31.9 | ||||||||||||||
Deferred tax liabilities | 4.2 | 4.3 | ||||||||||||||
Long-term liabilities | 66.4 | 60.0 | ||||||||||||||
Long-term debt | 370.4 | 369.6 | ||||||||||||||
Total liabilities | 678.9 | 638.9 | ||||||||||||||
Commitments and contingencies | ||||||||||||||||
Stockholders' equity: | ||||||||||||||||
Preferred stock, 5,000,000 shares authorized at both December 31, 2018 and December 31, 2017; no shares were issued and outstanding at December 31, 2018 and December 31, 2017 | — | — | ||||||||||||||
Common stock, par value $0.01, 90,000,000 shares authorized at both December 31, 2018 and December 31, 2017; 22,471,705 shares issued and 16,234,603 shares outstanding at December 31, 2018; 22,393,537 shares issued and 16,773,586 shares outstanding at December 31, 2017 | 0.2 | 0.2 | ||||||||||||||
Additional paid in capital | 1,059.3 | 1,055.9 | ||||||||||||||
Retained earnings | 150.2 | 85.5 | ||||||||||||||
Treasury stock, at cost, 6,237,102 shares at December 31, 2018 and 5,619,951 shares at December 31, 2017 | (420.5 | ) | (358.6 | ) | ||||||||||||
Accumulated other comprehensive loss | (48.8 | ) | (36.7 | ) | ||||||||||||
Total stockholders' equity | 740.4 | 746.3 | ||||||||||||||
Total | $ | 1,419.3 | $ | 1,385.2 |
1 Please refer to the Company's Form 10-K for the year ended December 31, 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) | ||||||||||||||||||||||||||||||||||||||||||||||
Quarter Ended | Year Ended | |||||||||||||||||||||||||||||||||||||||||||||
December 31, | December 31, | |||||||||||||||||||||||||||||||||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||||||||||||||||||||||||||||||||
GAAP net income (loss) | $ | 23.6 | $ | (15.2 | ) | $ | 91.7 | $ | 45.4 | |||||||||||||||||||||||||||||||||||||
Interest expense | 5.7 | 5.8 | 22.7 | 22.2 | ||||||||||||||||||||||||||||||||||||||||||
Other expense, net | 1.2 | 0.5 | 0.9 | — | ||||||||||||||||||||||||||||||||||||||||||
Income tax provision | 6.4 | 50.8 | 28.3 | 87.6 | ||||||||||||||||||||||||||||||||||||||||||
GAAP operating income | 36.9 | 41.9 | 143.6 | 155.2 | ||||||||||||||||||||||||||||||||||||||||||
Mark-to-market loss (gain)1 | 3.0 | (5.4 | ) | 17.7 | (19.4 | ) | ||||||||||||||||||||||||||||||||||||||||
Goodwill impairment | — | — | — | 18.4 | ||||||||||||||||||||||||||||||||||||||||||
Other operating NRR loss (gain)2,3 | 3.2 | 0.7 | (0.4 | ) | 4.9 | |||||||||||||||||||||||||||||||||||||||||
Operating income, excluding operating NRR items | 43.1 | 37.2 | 160.9 | 159.1 | ||||||||||||||||||||||||||||||||||||||||||
Depreciation and Amortization | 11.5 | 10.4 | 43.9 | 39.7 | ||||||||||||||||||||||||||||||||||||||||||
Adjusted EBITDA 4 | $ | 54.6 | $ | 47.6 | $ | 204.8 | $ | 198.8 | ||||||||||||||||||||||||||||||||||||||
GAAP net income (loss) | $ | 23.6 | $ | (15.2 | ) | $ | 91.7 | $ | 45.4 | |||||||||||||||||||||||||||||||||||||
Operating NRR Items | 6.2 | (4.7 | ) | 17.3 | 3.9 | |||||||||||||||||||||||||||||||||||||||||
Non-Operating NRR Items | 1.6 | 1.9 | 6.1 | 4.5 | ||||||||||||||||||||||||||||||||||||||||||
Tax impact of above NRR Items | (1.7 | ) | 1.2 | (5.8 | ) | (3.1 | ) | |||||||||||||||||||||||||||||||||||||||
NRR tax charge | — | 37.2 | — | 37.2 | ||||||||||||||||||||||||||||||||||||||||||
Adjusted net income | $ | 29.7 | $ | 20.4 | $ | 109.3 | $ | 87.9 | ||||||||||||||||||||||||||||||||||||||
GAAP earnings (loss) per diluted share 5 | $ | 1.41 | $ | (0.90 | ) | $ | 5.43 | $ | 2.63 | |||||||||||||||||||||||||||||||||||||
Adjusted earnings per diluted share 5 | $ | 1.77 | $ | 1.22 | $ | 6.48 | $ | 5.09 | ||||||||||||||||||||||||||||||||||||||
1 Mark-to-market loss (gain) on derivative instruments for 2018 represents the reversal of mark-to-market loss (gain) on hedges entered into prior to the adoption of ASU 2017-12 and settled in 2018. Operating income excluding non-run-rate items reflects the realized loss (gain) of such settlements. | ||||||||||||||||||||||||||||||||||||||||||||||
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