Kaiser Aluminum Corporation Reports Second Quarter and First Half 2018 Financial Results
Second Quarter 2018 Highlights:
- Net Sales
$415 Million ; Value Added Revenue$210 Million - Net Income
$21 Million ; Adjusted EBITDA$55 Million ; Adjusted EBITDA Margin 26.0% - Moderating Aerospace Destocking; Continued Strong Automotive and General Engineering Demand
- Record Shipments Driven By Strong Demand and Recent Capital Investments
- Higher Year-Over-Year Metal and Freight Costs Continued to Compress Margins
- Price Increases Implemented to Address Rising Metal and Freight Costs
First Six Months 2018 Highlights:
- Net Sales
$803 Million ; Value Added Revenue$413 Million - Net Income
$46 Million ; Adjusted EBITDA$103 Million ; Adjusted EBITDA Margin 24.9% - Higher Metal and Freight Costs Had a Significant Adverse Impact on Margins
- Improving Underlying Manufacturing Cost Efficiencies
For the first half 2018, the Company reported net income of
Second Quarter and First Half 2018 Summary
“Solid second quarter 2018 results were driven by strong demand and record shipments. In addition, aggressive price increases implemented in April and May began to offset the severe margin compression from high metal and freight costs. The continued benefit from favorable spreads on scrap raw material purchases further cushioned the impact of rising costs on adjusted EBITDA margin,” said
“Record shipments in the second quarter 2018 reflected continued demand growth for our general engineering applications, continued growth in automotive extrusion content, improving demand for commercial aerospace applications as supply chain destocking moderates, and the benefits of increased capacity from recent investments.
“During the quarter the Trentwood modernization project continued with the implementation of practice changes for new processes and installation of handling equipment at the light gauge furnace. While we experienced inefficiencies in the second quarter related to this work, we are realizing underlying manufacturing efficiency and capacity benefits from the investments and we expect continuing improvement as we finalize the project work,” stated Mr. Hockema.
Second Quarter and First Half 2018 Consolidated Results | |||||||||||||||||||
(Unaudited)* | |||||||||||||||||||
(In millions of dollars, except shipments, realized price and per share amounts) | |||||||||||||||||||
Quarterly | Six Months | ||||||||||||||||||
2Q18 | 1Q18 | 2Q17 | 1H18 | 1H17 | |||||||||||||||
Shipments (millions of lbs.) | 169 | 166 | 160 | 335 | 323 | ||||||||||||||
Net sales | $ | 415 | $ | 388 | $ | 356 | $ | 803 | $ | 712 | |||||||||
Less hedged cost of alloyed metal1 | (205 | ) | (185 | ) | (154 | ) | (391 | ) | (306 | ) | |||||||||
Value added revenue | $ | 210 | $ | 203 | $ | 202 | $ | 413 | $ | 406 | |||||||||
Realized price per pound ($/lb.) | |||||||||||||||||||
Net sales | $ | 2.46 | $ | 2.34 | $ | 2.23 | $ | 2.40 | $ | 2.20 | |||||||||
Less hedged cost of alloyed metal | (1.22 | ) | (1.12 | ) | (0.96 | ) | (1.17 | ) | (0.94 | ) | |||||||||
Value added revenue | $ | 1.24 | $ | 1.22 | $ | 1.27 | $ | 1.23 | $ | 1.26 | |||||||||
As reported | |||||||||||||||||||
Operating income2 | $ | 35 | $ | 37 | $ | 13 | $ | 72 | $ | 72 | |||||||||
Net income | $ | 21 | $ | 26 | $ | 5 | $ | 46 | $ | 41 | |||||||||
EPS, diluted3 | $ | 1.22 | $ | 1.51 | $ | 0.27 | $ | 2.74 | $ | 2.34 | |||||||||
Adjusted4 | |||||||||||||||||||
Operating income | $ | 44 | $ | 38 | $ | 44 | $ | 81 | $ | 89 | |||||||||
EBITDA5 | $ | 55 | $ | 48 | $ | 54 | $ | 103 | $ | 108 | |||||||||
EBITDA margin6 | 26.0 | % | 23.8 | % | 26.7 | % | 24.9 | % | 26.6 | % | |||||||||
Net income | $ | 28 | $ | 27 | $ | 25 | $ | 56 | $ | 52 | |||||||||
EPS, diluted3 | $ | 1.68 | $ | 1.60 | $ | 1.47 | $ | 3.28 | $ | 2.99 | |||||||||
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. | |||||||||||||||||||
Second Quarter 2018
Net sales for the second quarter 2018 were
Value added revenue (net sales less the hedged cost of alloyed metal) for the second quarter 2018 increased 4% to
Consolidated operating income as reported was
Adjusted consolidated EBITDA of
First Half 2018
Net sales for the first half 2018 were
Value added revenue of
Consolidated operating income as reported was
Adjusted consolidated EBITDA of
Cash Flow and Balance Sheet
During the first half 2018, in addition to funding normal operations the Company funded
Second Half and Full Year 2018 Outlook
“Our positive outlook that we reiterated during our first quarter 2018 earnings call remains unchanged," stated Mr. Hockema. "Demand for our automotive and general engineering products remains strong, and we anticipate improving demand for our aerospace applications as the supply chain destocking continues to moderate and as airframe manufacturers continue to ramp-up build rates to address the large nine-year order backlog. In addition, the increased U.S. defense spending and increased demand from U.S. allies strengthens the outlook for the F-35 Joint Strike Fighter, the F/A-18 Super Hornet and other military applications.
“We anticipate the full benefit of the second quarter price increases to be realized in the third quarter. However, the EBITDA margin benefit from price realization compared to the second quarter will be largely offset by higher planned major maintenance expense during the second half 2018, including costs related to a one-week outage for maintenance on the hot line and large stretcher at our Trentwood facility planned for the fourth quarter.
“For the full year 2018, we anticipate mid-single-digit growth in shipments and value added revenue with adjusted EBITDA margin in the mid-20 percent range. As the year continues to progress, we expect to achieve continued improvement in manufacturing cost efficiency as we further realize benefits from our recent capital investments,” 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 | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
(In millions of dollars, except share and per share amounts) | |||||||||||||||
Net sales | $ | 415.4 | $ | 356.3 | $ | 803.4 | $ | 711.6 | |||||||
Costs and expenses: | |||||||||||||||
Cost of products sold, excluding depreciation and amortization and other items |
343.4 | 289.6 | 660.1 | 552.3 | |||||||||||
Depreciation and amortization | 10.9 | 9.5 | 21.4 | 19.1 | |||||||||||
Selling, general, administrative, research and development | 26.4 | 26.3 | 50.0 | 50.0 | |||||||||||
Goodwill impairment | — | 18.4 | — | 18.4 | |||||||||||
Other operating charges, net |
— | — | 0.1 | — | |||||||||||
Total costs and expenses | 380.7 | 343.8 | 731.6 | 639.8 | |||||||||||
Operating income | 34.7 | 12.5 | 71.8 | 71.8 | |||||||||||
Other (expense) income: | |||||||||||||||
Interest expense | (5.7 | ) | (5.5 | ) | (11.3 | ) | (11.1 | ) | |||||||
Other (expense) income, net | (0.5 | ) | (0.1 | ) | (0.4 | ) | 0.7 | ||||||||
Income before income taxes | 28.5 | 6.9 | 60.1 | 61.4 | |||||||||||
Income tax provision | (7.8 | ) | (2.2 | ) | (13.7 | ) | (20.7 | ) | |||||||
Net income | $ | 20.7 | $ | 4.7 | $ | 46.4 | $ | 40.7 | |||||||
Net income per common share: | |||||||||||||||
Basic | $ | 1.24 | $ | 0.28 | $ | 2.78 | $ | 2.37 | |||||||
Diluted2 | $ | 1.22 | $ | 0.27 | $ | 2.74 | $ | 2.34 | |||||||
Weighted-average number of common shares outstanding (in thousands): | |||||||||||||||
Basic | 16,685 | 17,003 | 16,696 | 17,193 | |||||||||||
Diluted2 | 16,905 | 17,201 | 16,962 | 17,418 | |||||||||||
Dividends declared per common share | $ | 0.55 | $ | 0.50 | $ | 1.10 | $ | 1.00 | |||||||
1 Please refer to the Company's Form 10-Q for the quarter ended June 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) | |||||||
June 30, 2018 | December 31, 2017 | ||||||
(In millions of dollars, except share and per share amounts) | |||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 164.0 | $ | 51.1 | |||
Short-term investments | 71.9 | 183.7 | |||||
Receivables: | |||||||
Trade receivables, net | 191.2 | 165.0 | |||||
Other | 18.9 | 15.5 | |||||
Contract assets | 52.6 | — | |||||
Inventories | 177.2 | 207.9 | |||||
Prepaid expenses and other current assets | 29.0 | 33.4 | |||||
Total current assets | 704.8 | 656.6 | |||||
Property, plant and equipment, net | 584.2 | 571.4 | |||||
Deferred tax assets, net | 51.5 | 72.0 | |||||
Intangible assets, net | 24.3 | 25.0 | |||||
Goodwill | 18.8 | 18.8 | |||||
Other assets | 40.2 | 41.4 | |||||
Total | $ | 1,423.8 | $ | 1,385.2 | |||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 132.0 | $ | 90.0 | |||
Accrued salaries, wages and related expenses | 32.2 | 42.6 | |||||
Other accrued liabilities | 29.9 | 40.5 | |||||
Total current liabilities | 194.1 | 173.1 | |||||
Net liabilities of Salaried VEBA | 31.8 | 31.9 | |||||
Deferred tax liabilities | 4.3 | 4.3 | |||||
Long-term liabilities | 62.6 | 60.0 | |||||
Long-term debt | 370.0 | 369.6 | |||||
Total liabilities | 662.8 | 638.9 | |||||
Commitments and contingencies | |||||||
Stockholders' equity: | |||||||
Preferred stock, 5,000,000 shares authorized at both June 30, 2018 and December 31, 2017; no shares were issued and outstanding at June 30, 2018 and December 31, 2017 | — | — | |||||
Common stock, par value $0.01, 90,000,000 shares authorized at both June 30, 2018 and at December 31, 2017; 22,471,592 shares issued and 16,665,941 shares outstanding at June 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 | 1,054.7 | 1,055.9 | |||||
Retained earnings | 123.1 | 85.5 | |||||
Treasury stock, at cost, 5,805,651 shares at June 30, 2018 and 5,619,951 shares at December 31, 2017, respectively | (378.0 | ) | (358.6 | ) | |||
Accumulated other comprehensive loss | (39.0 | ) | (36.7 | ) | |||
Total stockholders' equity | 761.0 | 746.3 | |||||
Total | $ | 1,423.8 | $ | 1,385.2 | |||
1 Please refer to the Company's Form 10-Q for the quarter ended June 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 | |||||||||||||||||||||||
2Q18 | 1Q18 | 4Q17 | 3Q17 | 2Q17 | 1Q17 | ||||||||||||||||||
GAAP net income | $ | 20.7 | $ | 25.7 | $ | (15.2 | ) | $ | 19.9 | $ | 4.7 | $ | 36.0 | ||||||||||
Interest expense | 5.7 | 5.6 | 5.8 | 5.3 | 5.5 | 5.6 | |||||||||||||||||
Other expense (income), net | 0.5 | (0.1 | ) | 0.5 | 0.2 | 0.1 | (0.8 | ) | |||||||||||||||
Income tax provision | 7.8 | 5.9 | 50.8 | 16.1 | 2.2 | 18.5 | |||||||||||||||||
GAAP operating income 1 | 34.7 | 37.1 | 41.9 | 41.5 | 12.5 | 59.3 | |||||||||||||||||
Mark-to-market losses (gains) | 5.5 | 6.3 | (5.4 | ) | (10.8 | ) | 11.9 | (15.1 | ) | ||||||||||||||
Goodwill impairment | — | — | — | — | 18.4 | — | |||||||||||||||||
Other operating NRR losses (gains) 1,2,3 | 3.5 | (5.7 | ) | 0.7 | 2.1 | 1.6 | 0.5 | ||||||||||||||||
Operating income, excluding operating NRR items | 43.7 | 37.7 | 37.2 | 32.8 | 44.4 | 44.7 | |||||||||||||||||
Depreciation and Amortization | 10.9 | 10.5 | 10.4 | 10.2 | 9.5 | 9.6 | |||||||||||||||||
Adjusted EBITDA 4 | $ | 54.6 | $ | 48.2 | $ | 47.6 | $ | 43.0 | $ | 53.9 | $ | 54.3 | |||||||||||
GAAP net income (loss) | $ | 20.7 | $ | 25.7 | $ | (15.2 | ) | $ | 19.9 | $ | 4.7 | $ | 36.0 | ||||||||||
Operating NRR Items 1 | 9.0 | 0.6 | (4.7 | ) | (8.7 | ) | 31.9 | (14.6 | ) | ||||||||||||||
Non-Operating NRR Items 1 | 1.5 | 1.5 | 1.9 | 1.7 | 1.1 | (0.2 | ) | ||||||||||||||||
Tax impact of above NRR Items | (2.8 | ) | (0.5 | ) | 1.2 | 2.6 | (12.4 | ) | 5.5 | ||||||||||||||
NRR Tax Charge | — | — | 37.2 | — | — | — | |||||||||||||||||
Adjusted net income | $ | 28.4 | $ | 27.3 | $ | 20.4 | $ | 15.5 | $ | 25.3 | $ | 26.7 | |||||||||||
GAAP earnings (loss) per diluted share 5 | $ | 1.22 | $ | 1.51 | $ | (0.90 | ) | $ | 1.16 | $ | 0.27 | $ | 2.04 | ||||||||||
Adjusted earnings per diluted share 5 | $ | 1.68 | $ | 1.60 | $ | 1.22 | $ | 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