Constellium - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 revenue was $1.721B (-1% YoY), with a net loss of $47M (vs. $5M net income in Q4 2023) and Adjusted EBITDA of $125M; shipments fell 2% YoY to 328k tons.
• Management introduced 2025 guidance of Adjusted EBITDA (ex metal price lag) $600–$630M and Free Cash Flow >$120M, and long-term 2028 targets of $900M Adjusted EBITDA (ex metal price lag) and $300M Free Cash Flow.
• Tariffs could make domestically produced U.S. flat-rolled products more competitive; Constellium already announced a U.S. price increase and expects potential tailwinds, although the situation remains fluid and not included in guidance.
• Key Q4 headwinds: tight scrap spreads in North America (estimated $15–$20M per quarter headwind in P&ARP), flood-related impacts at Valais ($15M EBITDA, $39M FCF), and automotive weakness, especially Europe; positive non-cash metal price lag was +$27M in Q4.
• Note: An 8-K 2.02 filing was not available; this recap is based on the official Q4 press release and the full earnings call transcript.

What Went Well and What Went Wrong

What Went Well

• Positive non-cash metal price lag (+$27M) supported reported Adjusted EBITDA; management highlighted the “pass-through” business model minimizing exposure to metal price risk.
• Recycling capacity and technology advancing: Neuf‑Brisach recycling/casting center started in September and delivered qualified coils to Crown (adds 130k tons/yr capacity; total recycling capacity ~735k tons); industrial LIBS scrap sorting achieved >95% alloy purity to boost circularity.
• Cost discipline actions (Vision ’25) accelerated; 2025 run-rate savings expected to step up, with holdings & corporate expense guided at ~$40M in 2025.

What Went Wrong

• Tight North American scrap spreads pressured P&ARP margins; management estimated a $15–$20M per quarter headwind under current market conditions.
• Flood in Valais disrupted A&T and AS&I: Q4 impact -$15M on Adjusted EBITDA and -$39M on FCF; full-year 2024 impact -$33M EBITDA and -$45M FCF (insurance proceeds below EBITDA).
• Demand weakness across most end markets, notably automotive in Europe and certain industrial/specialties, drove lower shipments and unfavorable price/mix, contributing to a $47M net loss and lower segment EBITDA YoY.

Transcript

Moderator (participant)

Hello and welcome to the Constellium Fourth Quarter and Full Year 2024 Results Conference Call. My name is Alex, and I'll be coordinating the call today. If you'd like to ask a question once the presentation has finished, please press star followed by one on your telephone keypad. I'll now hand it over to your host, Jason Hershiser, Director of Investor Relations. Please go ahead.

Jason Hershiser (Director of Investor Relations)

Thank you, Alex. I'd like to welcome everyone to our fourth quarter and full year 2024 earnings call. On the call today, we have our Chief Executive Officer, Jean-Marc Germain, and our Chief Financial Officer, Jack Guo. After the presentation, we will have a Q&A session. As a reminder, and as we previously announced, we are now reporting in U.S. dollars and under U.S. GAAP, starting with our fourth quarter and full year 2024 results today. A copy of the slide presentation for today's call is available on our website at constellium.com, and today's call is being recorded. Before we begin, I'd like to encourage everyone to visit the company's website and take a look at our recent filings. Today's call may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Such statements include statements regarding the company's anticipated financial and operating performance, future events, and expectations, and may involve known and unknown risks and uncertainties. For a summary of specific risk factors that could cause results to differ materially from those expressed in the forward-looking statements, please refer to the factors presented under the heading Risk Factors in our annual report on Form 20-F and in future filings under Form 10-K. All information in this presentation is as of the date of the presentation. We undertake no obligation to update or revise any forward-looking statement as a result of new information, future events, or otherwise, except as required by law. In addition, today's presentation includes information regarding certain non-GAAP financial measures. Please see the reconciliations of non-GAAP financial measures attached in today's slide presentation, which supplement our GAAP disclosures.

Before turning the call over to Jean-Marc, I wanted to remind everyone that beginning early last year, we revised the definition of Adjusted EBITDA at the consolidated level based on our prior discussions with the SEC. The new definition will no longer exclude the non-cash impact of metal price lag. We will continue to provide investors and other stakeholders with a non-cash metal price lag impact that is necessary to get a true assessment of the economic performance of the business. Our segment Adjusted EBITDA will continue to exclude this impact, and any guidance we provide for Adjusted EBITDA will also exclude the impact, and with that, I would now like to hand the call over to Jean-Marc.

Jean-Marc Germain (CEO)

Thank you, Jason. Good morning, good afternoon, everyone, and thank you for your interest in Constellium. Let's begin on slide five. I want to start with safety, our number one priority. Our recordable case rate for the year of 2.0 per million hours worked was slightly higher than the prior year, but I am pleased to report that we continue to deliver best-in-class safety performance. We are committed to achieving our safety target to reduce our recordable case rate to 1.5. Now let's turn to slide six and discuss the highlights from our fourth quarter performance. Shipments were 328,000 tons, down 2% compared to the fourth quarter of 2023, mainly due to lower shipments in A&T and AS&I. Revenue of $1.7 billion decreased 1% compared to the fourth quarter of 2023, primarily due to lower shipments and unfavorable price and mix, partially offset by higher metal prices.

Remember, while our revenues are affected by changes in metal prices, we operate a pass-through business model, which minimizes our exposure to metal price risk. Our net loss of $47 million in the quarter compares to net income of $5 million in the fourth quarter of 2023. Adjusted EBITDA was $125 million in the quarter, though this includes a negative impact at Valais of $15 million as a result of the flood. This also includes a positive non-cash impact from metal price lag of $27 million. If we exclude the impact of the flood and the impact of metal price lag, as Jason mentioned earlier, the real economic performance of the business reflects adjusted EBITDA of $113 million in the quarter compared to the $178 million we achieved in the fourth quarter of 2023.

Cash from operations was $61 million in the quarter, and I am pleased to report that we continued our share buyback program. During the quarter, we returned $18 million to shareholders through the repurchase of 1.6 million shares. Before turning to our full year performance, I wanted to give you a quick update on the flooding situation in the Valais. As of today, the business is on track to complete production ramp-up by the end of the first quarter this year, which is in line with our prior expectations. As we mentioned last quarter, we expect some cost impact in 2025 as production will continue to ramp up, and we expect to receive the remaining portion of the insurance proceeds in 2025 as well.

While the impact of the flood had a material impact on our business, I am pleased that the total damages from the event came in below our original insurance gross damage assessment, and we will be able to put the event in the rearview mirror very soon. Now turn to slide seven for our full year highlights. For the full year, shipments were 1.4 million tons, or down 4% compared to 2023. Revenue of $7.3 billion decreased 6% compared to 2023, primarily due to lower shipments and unfavorable price and mix, partially offset by higher metal prices. Our net income of $60 million compares to net income of $157 million in 2023. Adjusted EBITDA was $623 million for the full year in 2024, though this includes a negative impact at Valais of $33 million as a result of the flood.

This also includes a positive non-cash impact from metal price lag of $55 million. Again, if we exclude the impact of the flood and the impact of metal price lag, the real economic performance of the business reflects adjusted EBITDA of $601 million for the year compared to the record $754 million we achieved in 2023. Given the change in year-over-year performance during 2024, we accelerated our cost reduction efforts and took actions to reduce working capital to align to the current demand environment, which Jack and I will be discussing later on. Moving now to free cash flow. Our free cash flow for the year was negative $100 million in 2024.

If you exclude the impact of the Valais flood and include cash received for the collection of deferred purchase price receivables, free cash flow would have been positive $30 million in 2024, which Jack will cover in more detail. Our leverage at the end of 2024 was 3.1 times. If we exclude the Valais flood impact, the leverage was 2.9 times at the end of 2024. Clearly, 2024 was a very challenging year for Constellium on many fronts. The year began with the extreme cold weather and snow impacting operations at Muscle Shoals in January, and we experienced severe flooding at our facilities in the Valais region in Switzerland during the summer.

In addition, we faced market-driven headwinds starting in the second quarter last year, and which became more pronounced in the second half, including demand weakness across most of our end markets and significant tightening of scrap spreads in North America. I want to thank each of our 12,000 employees for their commitment, resilience, and relentless focus on serving our customers during these difficult times. On a more positive note, I am pleased that we started up our new recycling and casting center in Neuf-Brisach in September, slightly ahead of schedule and below budget, and we returned $79 million to shareholders through the repurchase of 4.6 million shares of company stock during the year. I am also excited to begin reporting our results in U.S. dollars under U.S. GAAP today, and soon we will file our first annual report on Form 10-K. Now, please turn to slide eight.

Before turning the call over to Jack, I wanted to give a quick update on the latest Section 232 tariffs and how we see the potential impact to Constellium. Before going into details on the slide, let me summarize a bit. The tariff situation is a fluid and multifaceted situation. We see both some positive and negative impacts on our business, and at this stage, we believe it presents us with various opportunities. The guidance we are giving today does not include any impacts from tariffs. Shifting to the details on the slide now, on the production side, we are mostly local for local in the regions where we operate. We have a joint venture in Canada that provides extrusions to our automotive structures business in the U.S., and these extrusions will become more expensive under Section 232 tariffs.

In aerospace, we ship small quantities from Europe to the U.S. to serve global OEMs, though this has a pass-through today and it will not be impacted. On the metal supply side, we import some primary aluminum from Canada given the lack of smelter capacity in the U.S., and some of these imports will become more expensive. Commercial negotiations will be necessary to mitigate tariffs, and there may be a lag in passing additional costs through. In terms of scrap now, aluminum scrap is excluded from the current scope of Section 232 tariffs. We purchase most of our scrap needs from dealers in the U.S. The impact on scrap from tariffs could be a net positive, as it could increase the availability of scrap in the U.S., and scrap spreads could improve with a rise in the Midwest Premium for aluminum.

Now, in terms of commercial impacts, these two could be a net positive for Constellium. Today, around one million tons of flat rolled aluminum imports are coming into the U.S. Tariffs will make domestically produced products more competitive, and we should benefit from this. As an example, earlier this week, we announced a price increase for all flat rolled products shipped in the U.S. We have some business in the U.S. that is priced quarterly, and we should benefit as soon as the second quarter of this year from the new market dynamics. The overall impact on our end markets is way too early to estimate and will depend on the overall health of the U.S. economy, and it will also depend on the types of tariffs to be implemented in the future, including the originally announced and then paused blanket tariffs on Canada and Mexico.

The same logic should apply in terms of impact on aluminum, though the overall impact at this time is unknown. To close out on tariffs, as I said before, the situation remains very fluid. We are continually monitoring and assessing the potential impact of current and future trade policies, though at this stage, we believe it presents us with some opportunities. With that, I will now hand the call over to Jack for further details on our financial performance. Jack?

Jack Guo (CFO)

Thank you, Jean-Marc, and thank you everyone for joining the call today. Please turn now to slide 10 and let's focus on our ANT segment performance. Adjusted EBITDA of $56 million decreased 33% compared to the fourth quarter last year. Volume was a headwind of $3 million, mainly due to lower TID shipments as commercial transportation and general industrial markets remained weak in the quarter. TID shipments were also impacted at Valais as a result of the flood. Shipments in aerospace were stable versus the same quarter last year, and demand in military aircraft remained healthy. Price and mix was a headwind of $19 million due to a softer pricing environment in TID and weaker aerospace mix in the quarter. During the fourth quarter, ANT had a negative impact of $5 million at Valais as a result of the flood.

For the full year 2024, ANT generated Adjusted EBITDA of $285 million, a decrease of 19% compared to a record 2023. The drivers of the full year performance were similar to those in the fourth quarter, except cost was a tailwind of $11 million for the full year, and the Valais impact was a headwind of $13 million. Now turn to slide 11 and let's focus on our part segment performance. Adjusted EBITDA of $56 million decreased 34% compared to the fourth quarter last year. Volume was a tailwind of $1 million as higher shipments in packaging were mostly offset by lower shipments in automotive. Packaging shipments increased 4% in the quarter versus last year as demand remained healthy in both North America and Europe. Automotive shipments decreased 10% in the quarter with weakness in both North America and Europe.

Price and mix was a headwind of $5 million, mainly as a result of weaker mix in the quarter. Costs were a headwind of $24 million as a result of unfavorable metal costs given tighter scrap spreads in North America, partially offset by lower operating costs. As we said in the past, the negative impact of tighter scrap spreads in North America is $15-$20 million per quarter given the current market conditions. The fourth quarter of 2023 also benefited from energy-related grants in Europe, which did not repeat to the same degree in 2024. For the full year 2024, PARC generated adjusted EBITDA of $242 million, a decrease of 21% compared to 2023. The drivers of the full year performance were similar to those in the fourth quarter. Now turn to slide 12 and let's focus on the AS&I segment.

Adjusted EBITDA of $4 million decreased 83% compared to the fourth quarter of last year. Volume was a $7 million headwind as a result of lower shipments in automotive and industry extruded products. Automotive shipments were down 12% in the quarter with weakness in both North America and Europe. Industry shipments were down 17% in the quarter versus last year as weakness persisted in Europe. Industry shipments were also impacted at Valais as a result of the flood. Price and mix was a $2 million tailwind in the quarter while costs were a headwind of $2 million. FX and other was also a headwind of $2 million in the quarter. During the fourth quarter, AS&I had a negative impact of $10 million at Valais as a result of the flood. For the full year 2024, AS&I generated adjusted EBITDA of $74 million, a decrease of 43% compared to 2023.

Volume, FX, and other were similar impacts in the full year as the fourth quarter, though for the full year, costs were a tailwind of $20 million. Price and mix was a headwind of $25 million, and the Valais impact was a headwind of $20 million. It is not on the slide here, but our holdings and corporate expense for the full year in 2024 was $33 million, up $2 million from last year. We currently expect holdings and corporate expense to run at approximately $40 million in 2025. It is also not on the slide here, but I wanted to summarize the current cost environment we're facing. As you know, we operate a pass-through business model, so we're not materially exposed to changes in the market price of aluminum, our largest cost input. Other metal costs, we experienced a dramatic tightening of scrap spreads in North America in 2024.

We expect this to continue throughout 2025 and will create headwinds on metal costs, primarily impacting our PARC segment as it uses a significant amount of used beverage cans and other types of scrap. For energy, our 2025 costs are moderately more favorable compared to 2024, although energy prices remain above historical averages. Other inflationary pressures have eased to more normal levels, and as we said last quarter, given the weakness we're seeing in several of our markets, we have accelerated our Vision '25 cost improvement program with measures such as reducing headcounts and other labor costs, reducing non-metal procurement spending, optimizing maintenance costs by minimizing the use of outside contractors, and cost reduction efforts across many other categories. We have demonstrated strong cost performance in the past, and we're confident in our ability to right-size our cost structure for the current demand environment.

You saw some of the benefits in our 2024 results, and the run rate benefit should be even more in 2025. Now, let's turn to slide 13 and discuss the free cash flow. Free cash flow was negative $100 million for the full year in 2024, although this includes a negative $45 million impact at Valais as a result of the flood, which is net of the $45 million of insurance proceeds we received in 2024. This also excludes $85 million of cash we received for the collection of deferred purchase price receivables, which is a result of our conversion from IFRS to US GAAP at the corresponding accounting treatment. The technical accounting treatment for the collection of deferred purchase price receivables does not change the economic reality or free cash flow generation historically for Constellium.

The deferred purchase price receivables are related to some of our previous factoring arrangements in Europe. We have recently amended these arrangements, and all cash received under the arrangements will be recorded in operating cash flows going forward. As Jean-Marc mentioned, free cash flow excluding the impact of the Valais flood and including cash received for collection of deferred purchase price receivables would have been positive $30 million in 2024. Looking at 2025, we expect to generate free cash flow in excess of $120 million for the full year. We expect CapEx to be approximately $330 million this year, which is around $70 million lower compared to 2024. We expect cash interest of approximately $120 million and cash taxes of approximately $40 million, and we expect working capital and other to be a modest source of cash for the full year.

As Jean-Marc mentioned previously, we continued our share buyback activities in the quarter. During the quarter, we repurchased 1.6 million shares for $18 million, bringing our 2024 total to 4.6 million shares for $79 million. We have approximately $221 million remaining in our existing share repurchase program, and we intend to use a large portion of the free cash flow generated this year for the program. Now, let's turn to slide 14 and discuss our balance sheet and liquidity position. At the end of the fourth quarter, our net debt of $1.8 billion was up $72 million compared to the end of 2023, partially as a result of the Valais flood. Our leverage was 3.1 times at the end of 2024, were up 0.8 times versus the end of 2023. If you exclude the Valais flood impact, leverage was 2.9 times at the end of the year.

We're committed to maintaining our leverage in the target leverage range of 1.5-2.5 times over time. As you can see in our debt summary, we have no bond maturities until 2028, and our liquidity remains strong at $727 million as of the end of 2024. With that, I will now hand the call back to Jean-Marc.

Jean-Marc Germain (CEO)

Thank you, Jack. Let's turn to slide 16 and discuss our current end market outlook. The majority of our portfolio today is serving end markets benefiting from durable, sustainability-driven secular growth, in which aluminum, light, and infinitely recyclable material plays a critical role. However, in the short term, many of these markets are facing headwinds. Turning first to the aerospace market, commercial aircraft backlogs are robust today and continue to grow. Major aero OEMs remain focused on increasing build rates for both narrow and wide-body aircraft, though supply chain challenges continue to slow deliveries. As a result, aerospace supply chains need to adjust to lower than expected build rates, which is causing a shift in demand to the right for some of our products.

Despite the slowdown in the near term, demand has stabilized for the most part, and we remain confident that the long-term fundamentals driving aerospace demand remain intact, including growing passenger traffic and greater demand for new, more fuel-efficient aircraft. Demand remains stable in the business and regional jet markets and healthy for military aircraft. Turning now to packaging, demand remains healthy in both North America and Europe. The long-term outlook for this end market continues to be favorable, as evidenced by the growing consumer preference for the sustainable aluminum beverage can, capacity growth plans from can makers in both regions, and the greenfield investments ongoing here in North America. Longer term, we continue to expect packaging markets to grow low to mid-single digits in both North America and Europe. Let's turn now to automotive.

Automotive OEM production of flight vehicles in Europe remains well below pre-COVID levels and is still below pre-COVID levels in North America as well. Demand in North America has softened in the near term, and demand in Europe remains weak, particularly in the luxury and premium vehicle and electric vehicle segments, where we have greater exposure. In the long term, we believe electric and hybrid vehicles will continue to grow, but at a lower rate than previously expected. Sustainability trends such as lightweighting and increased fuel efficiency will continue to drive the demand for aluminum products. As a result, we remain positive on this market over the longer term in both regions, despite the weakness we are seeing today. As you can see on the page, these three core end markets represent over 80% of our last 12 months' revenue.

Turning lastly to other specialties, in North America, demand appears to have stabilized, albeit at low levels, and demand remains weak in Europe. We have experienced weakness across most specialties markets for more than two years now, though we are beginning to see some green shoots in certain TID markets in North America. As a reminder, these markets are typically dependent upon the health of the industrial economies in each region, including drivers like the interest rate environment, industrial production levels, and consumer spending patterns. As Jack mentioned, we continue to work hard to adjust our cost structure to current demand environment, which will put the businesses in an even better position when the industrial economies do recover.

To conclude on the end markets, we like the fundamentals in each of the markets we serve, and we strongly believe that the diversification of our end markets is an asset for the company in any environment and that the current conditions will pass. Turning now to slide 17, based on our current outlook, including the current end market conditions I just described, for 2025, we are targeting Adjusted EBITDA, excluding the non-cash metal price lag, in the range of $600-$630 million and free cash flow in excess of $120 million. I'm also excited to establish today new long-term targets. For 2028, we expect to achieve Adjusted EBITDA, excluding the non-cash metal price lag, of $900 million and free cash flow of $300 million. On the slide here, we provided a bridge to show the major drivers to achieving $900 million of Adjusted EBITDA.

Our 2028 target incorporates a recovery in Valais following the flood, which is well underway, and an improvement of Muscle Shoals' operational performance, which we have demonstrated recently in the past several months. It also incorporates the benefits from our previously announced return-seeking investments, which include cost-saving investments like the recycling and casting center in Neuf-Brisach, and the cast house investments in Muscle Shoals and in Ravenswood, as well as growth projects like the new Airware cast house in Issoire and the battery foil investment with Lotte Aluminium in Singen. All of these projects, as well as some other smaller investments, are included in our existing CapEx umbrella. We have also assumed additional market growth for each of our end markets, though the growth rate we assumed are rates which are generally below current industry estimates.

As we have demonstrated in the past, we will continue to be disciplined on price. Also, as we have demonstrated in the past, we expect to maintain strict cost control to mitigate future inflationary impacts through productivity gains and other cost reduction initiatives. We have assumed the current tight scrap market in North America continues through 2028, which will lead to unfavorable metal costs, primarily in our P&ARP segment compared to 2024. We also assume the contingency in our 2028 target that should help offset potential deviations from the assumptions I just described. Lastly, on the bridge, we assume no impact from tariffs, and we assume also that the macroeconomic and geopolitical conditions remain generally stable, but we are used to changes.

Turning lastly to slide 18, to conclude, while we continue to face challenging conditions in most of our markets today, we believe that this will pass, and I remain very excited about our future and the ability to seize the many opportunities in front of us. We have demonstrated over and over again that we have the right strategy, the right teams, and the right products in the right markets, and that we know how to overcome crises. Our business model is flexible and resilient. Our diversified portfolio allows us to always have options in very different market conditions. We have built the balance sheet we need to both weather crises and seize opportunities, and our high-value, recyclable, and sustainable products respond to the growing needs of our customers. We are extremely well-positioned for long-term success and will remain focused on executing our strategy and on shareholder value creation. With that, Operator, we will now open the Q&A session, please.

Moderator (participant)

Thank you. As a reminder, if you'd like to ask a question, please press star, followed by one your telephone keypad. If you'd like to remove your question, you may press star, followed by one. Our first question for today comes from Corinne Blanchard of Deutsche Bank. The line is now open. Please go ahead.

Corinne Blanchard (Analyst)

Thank you. Good morning. Maybe the first question, and the second will be probably around the same line, but the guidance that you guys gave, and you did a good job at giving a lot of detail right now, but can you just give us maybe a little bit more on the key takes and puts for the 2025 EBITDA guidance and also for the free cash flow, like maybe the cadence going into 2Q and 3Q, and then my second question would be on the long-term outlook. Can you walk us through the bridge from 2025 to 2028 in our confidence? Should the market or should investors be in that number by 2028? Thank you.

Jean-Marc Germain (CEO)

Yes, good morning, Corinne. Thank you. And I'll start, and Jack, I'm sure, will help me. So on your first question, on the key takes and puts for 2025, so you look at the current conditions. I mean, as we said, the conditions we experience in the second half of 2024 are continuing and will feel their full impact in 2025. So the scrap spreads, for instance, the tightening of scrap spreads, we were protected last year with some annual contracts. We'll get the full impact of them this coming year. We believe that automotive is also going to be very weak in 2025, especially in Europe. On the aerospace side, we see that OEMs are struggling to meet their ramp-up, so that creates some elements of disruption in the supply chain.

So we're quite prudent on our assumption for our own shipments in aerospace to the main OEMs, even though we can make up some of that with other programs like military aircraft or space as well. And then obviously, the foreign exchange is not helping with the dollar strengthening of late. So that's another element. And then the Valais, as Jack mentioned, I believe you will still have some costs in Q1. So all that adds up to a number which is quite hefty going into 2025. Now, to offset that, we had talked about all the initiatives we have in place. We had talked about the ramp-up of the recycle center in Neuf-Brisach, and that's still very much underway and going well.

We had talked about operational improvements in Muscle Shoals, which we were starting to see the beginning of, but now we feel very confident that we are doing a good job there and we're back on track. We also have the repricing of some of our contracts in aerospace, which is going to benefit us starting in Q2, and obviously, the cost savings that we have accelerated that Jack maybe can comment a bit more upon in 2025, in light of the challenging market conditions, our ambitions for cost reductions have greatly increased compared to where we were back in 2024.

So when all that is said and done, you see a lot of adverse headwinds on the market side, right, generally, a little bit of a weaker beginning of the year because of the Valais and especially in the time it takes to have the full benefit of cost savings. And then you see all that being offset by the actions we had talked about. So I think that that's how I can answer your first question. I don't know, Jack, if I missed anything or.

Jack Guo (CFO)

No, I think that's good. I think, obviously, in a weaker environment, as we mentioned, we're accelerating our cost reduction efforts under Vision '25. A bucket of that is in labor, then a bucket of that is outside of labor. And previously, we've indicated a $50 million program over three years, and we're targeting $15-$20 million, if you will, for 2025 relative to 2024. In this environment, we're looking at more savings. We're looking at $50 million plus of opportunities we're executing on. We're very proud of the efforts we've made so far and will be very focused on cost.

Jean-Marc Germain (CEO)

Yeah. So that's your first question.

Corinne Blanchard (Analyst)

Thank you.

Jean-Marc Germain (CEO)

Corinne, do you want to move to the second one, the long-term outlook, 2024 to 2028, right? So we.

Corinne Blanchard (Analyst)

'28.

Jean-Marc Germain (CEO)

Yeah. So starting in 2025, right? And I'll go back to page 17, right? Most of the investments we're talking about, the second, so sorry, let me back up. The Constellium recovery is still very much in play, and most of that will, obviously, the Valais flood recovery is no more there because it happened in 2024, right? So if you start in 2025, that's already done. The investments are going to play out mostly towards the end of the period. I mean, the recycling center in Neuf-Brisach is right now, but the other investments are going to contribute towards the later part of the period. We believe that overall, the path from now to there to 2028 is pretty linear with some uncertainty, obviously, about how the markets recover. And one can make a case for markets recovering a bit faster.

Our own assumptions internally, we believe, are more prudent than what is out there. So we think some could say, "Well, it should improve faster," but we've been burned recently, so we tend to be prudent. You could also say that, and that's not in our guidance, that tariffs in the U.S. are going to be favorable to domestic suppliers, so that could accelerate some of that process. But anyway, we think we're going to be quite, we'd like to be quite prudent. And then on the, I think, the bigger red box you see on the scrap spreads, we believe that once we've taken the brunt of the scrap spread tightening impact this year, this should be kind of stable in the future. So we're not banking really on an improvement of the scrap spreads.

The reason we're not thinking that they can go worse is because at some point, it just becomes indifferent whether you recycle aluminum or you buy sheet ingot from primary aluminum, and that, I think, if you look at the scrap market, it's a worldwide market at some point. If scrap spreads become too tight in the U.S., it will create imports of scrap into the U.S., like that has happened in the past, so we're at historically tight scrap levels here in the U.S. I don't think we've got much of a risk of that getting worse, so that's how I can think about the kind of 2025 to 2028, pretty regular cadence, and obviously, we know that the market can throw us some curveballs from time to time, but we're trying to stay ahead of it.

Corinne Blanchard (Analyst)

Thank you. Maybe if I just can come back very quickly on the '25 guide. I think something that investors have been asking since this morning is, how should we think about the guidance if it had been given in euro? So what did the gap impact? We're trying to see what the factor in it means, impact, and trying to see what could have been the number also if you hadn't made the switch or so.

Jack Guo (CFO)

Yeah. Corinne, maybe we can take this offline. I mean, we're a U.S. dollar company now, and we're thinking in U.S. dollar terms. But we can help you with the bridge potentially afterwards.

Corinne Blanchard (Analyst)

That's fair. Okay. Thank you.

Moderator (participant)

Thank you. Our next question comes from Katja Jancic, from BMO Capital Markets. Your lines are open. Please go ahead.

Katja Jancic (Research Analyst)

Hi. Thank you for taking my questions. Maybe going back to the 2025 guide, is it fair to assume, given that near-term market is pretty challenging, that the weighting is going to be more second half relative to first half?

Jack Guo (CFO)

I mean, that's generally a fair, well, I would say the way I would kind of look at it is I would look at first quarter and then beyond first quarter. First quarter, Jean-Marc already alluded to, we have, first of all, seasonally, due to seasonality, it is weaker comparatively, and we'll have some impact from remaining impact from the flood at Valais, as we progress into the year, we'll see some of the benefits to kicking more, like the cost initiative, like the Muscle Shoals improvement, so it'll be stronger in the middle of the year.

Katja Jancic (Research Analyst)

So it's more like first quarter relative to the rest of the year, right?

Jack Guo (CFO)

Correct.

Jean-Marc Germain (CEO)

Then, Katja, even though it's not in our guide.

Katja Jancic (Research Analyst)

And then just on the.

Jean-Marc Germain (CEO)

Oh, sorry. Katja, I just wanted to add, even though it's not in our guidance, we have to look at what the tariffs may mean for us. And as I said, tariffs, by and large, we believe the way they are structured today should create opportunities for us. So that's more in the second half of the year, obviously.

Katja Jancic (Research Analyst)

Is this similar for the free cash flow generation?

Jack Guo (CFO)

It's a good question. Typically, in the first quarter is when we're building up working capital for the busier seasons. Typically, free cash flow is negative in the first quarter due to that reason. Remember, we started a number of cash initiatives last year to release cash from working capital due to the weaknesses we've experienced. There was a kind of, there's typically a lag in terms of when we see the benefits from those actions. We saw some benefits in the fourth quarter last year, but we'll see the remaining benefits in the first quarter of this year to help offset the buildup of working capital, if you will, if that makes sense.

Katja Jancic (Research Analyst)

Yeah, and Jack, you mentioned a lot of the free cash flow will be used for share buybacks. But given the timing, is this again more maybe initially, first Q, we don't really see an acceleration, and then we see an acceleration later in the year?

Jack Guo (CFO)

So I think we're comfortable with our leverage, and we're very confident in our liquidity position, and we're confident in our free cash flow generation. So when you put it all together, we'll continue to be quite hands-off and just let the program run.

Katja Jancic (Research Analyst)

Okay. I'll hop back into the queue. Thank you.

Jack Guo (CFO)

Thank you.

Jean-Marc Germain (CEO)

Thank you. Our next question for today comes from Bill Peterson of JPMorgan. Your lines are open. Please go ahead.

Bill Peterson (Equity Research Analyst)

Yeah. Hi. Good morning or good afternoon, Jean-Marc and Jack. I have a few questions that I'd like to kind of come back to on the demand environment and I guess how that impacts the outlook for the year $600 million-$630 million. So I guess speaking about the market aspects themselves, hoping you can go through the key assumptions for market growth and also your, I guess, your own shipment growth in mix across the bigger markets like aerospace, packaging, auto, and other. For example, we're kind of aware of the destocking, but are you assuming shipments will remain kind of weak for the year and mix will be unfavorable? In the case of auto, you talk about weakening U.S. Does that mean we should think of that going down this year? And then maybe in Europe, just remaining stable at a low level.

Kind of similar for industrials, are you just assuming flat given it's just already has been weak in Europe? Just trying to get a better understanding of how these end markets should impact this overall guide and I guess how that could then translate into your reporting segments, EBITDA, flat, up, down, so forth.

Jack Guo (CFO)

Okay. So it's a really good question, Bill. I don't think we want to be too prescriptive on this one. But generally speaking, if you look at aerospace, we expect stable type of environment, although mix could be weaker. As we've said, in a weaker aerospace environment, it caused us to push out some of the more profitable volume to later, right? So you expect to see unfavorable mix, but stable from a volume perspective for aerospace. We do believe automotive will continue to be weak this year. If you were to look at the latest industry build rates for the year in both North America and Europe, they're expected to be down versus 2024, and that will impact our automotive business. If you look at TID, I think there's some opportunities in TID, especially in North America in light of the tariff situation.

So we do expect that to improve. And packaging, we do expect continued improvement in the packaging market. And did I forget any other markets?

Jean-Marc Germain (CEO)

No. And I think also in TID in Europe, just the fact that we are not flooded anymore and we've resumed production, that's going to help us as well out of our Sierre facility.

Jack Guo (CFO)

Yeah. Good point.

Bill Peterson (Equity Research Analyst)

Yeah. Great. Thanks for that additional context for the full year guide. I wanted to come back to scrap, both kind of from a near-term perspective, sort of 2025, as well as the bridge for 2028. So first, on the near term, I guess is this sort of $15-$20 million per quarter discussed in the 4Q bridge, the right way to think about the headwind for 2025? And then over the midterm, and I guess on your bridge slide, can you break down, I guess, the impacts of scrap versus foreign exchange? And I guess how should we think about scrap spreads in other regions you operate in, particularly in Europe, acknowledging maybe better fundamental recycling rates and overall environment may be potentially offset by weaker industrial activity?

Jean-Marc Germain (CEO)

Yeah. I'll start, Bill, and Jack will help me as well. So we think that the impact of scrap spreads is really a '25 event, and then we do not assume really an improvement going forward. We believe it is mostly a North American problem. And when I look at what scraps we're buying in Europe today, yes, it's a little bit tighter, but nothing really to write home about. And long term, as you pointed out, there is more and more recycling happening in Europe, right? More and more collection of scrap, both industrial and consumer, post-consumer scrap. So I think that's good for the balance in Europe. And we feel that we are well covered both in the short term and the long term in Europe. North America, as I mentioned, it is a painful situation. The scrap spreads are very tight.

We believe they're going to stay very tight. But from a variance standpoint, once we're past 2025, we think it's not going to have much of an impact. And in terms of foreign exchange, Jack will help me, I'm sure. But the dollar is stronger now than it was on average last year and the year before, actually. So that's reflected in our guidance. We don't make an assumption that the dollar is going to change much from where it's at 104, 105, right? So we don't assume it's going to be different in 2025, 2026, 2027, 2028, right? It's pretty flat. Does that answer your question, Bill?

Bill Peterson (Equity Research Analyst)

Okay. Thanks for that, and I guess maybe that last point is if yeah, no it largely does, and I guess in the last point, if euro was to become stronger over the coming years, that actually flips to a tailwind, I guess, is the point.

Jean-Marc Germain (CEO)

That is correct. Yes. It creates a tailwind.

Bill Peterson (Equity Research Analyst)

Thanks.

Jean-Marc Germain (CEO)

From a cash flow standpoint, it's not much different, right? The translation effect is a tailwind, yes.

Moderator (participant)

Thank you. As a reminder, if you'd like to ask a question, that's star one on the telephone keypad. Our next question comes from Timna Tanners of Wolfe Research. Your lines are open. Please go ahead.

Timna Tanners (Managing Director for Equity Research)

Hey, good morning. I wanted to ask a few higher-level questions if we could take a step back. So I know we just talked about the scrap dynamic in the U.S., but with regard to that being sustained with new capacity starting up this year, putting more pressure or sustained pressure on scrap, what can you do to prepare longer term? You passed through the Midwest Premium, which has obviously exploded. Is there just no way to pass through scrap in the short term? And in the longer term, can you switch up your inputs? And then same question, short term, long term responses that Constellium can contemplate in terms of E.U. auto. If E.U. auto is just sustainably lower for the longer, can you switch some of that capacity more longer term?

And then the third short term, long term question is really on the potential for switching away from aluminum given these higher prices, with Coca-Cola talking about that topic. So just those are three questions. I'm sorry. I can repeat them if you want, but I'd love to get your thoughts.

Jean-Marc Germain (CEO)

No, that's fine. Thank you, Tim. Good morning. So on the scrap dynamics, right? So there is a specific pressure on used beverage cans, but it's a very large portion of what we buy. But I don't want to give an exact number, but around 50% of what we buy, right? So there's other types of scrap, and there's plenty of other scraps that we can use. And the other factor is as the Midwest Premium increases and as the US economy becomes stronger relative to the rest of the world, which is happening right now, we end up in a place where imports of scrap, as I mentioned earlier, become more attractive. So that also will put a dampening effect on further scrap tightening.

Then, as you mentioned, at some point, if it is so expensive, then people will look at, okay, well, there's a better option, which is buying sheet ingots from primary smelters. And that will put also a damper on how high scrap prices can go. So all that, we believe, we factor that all in at a pretty high level. So we believe that the projections we have that are in both our 600 and 900 targets reflect scrap market conditions that are quite unusual and we do not believe are sustainable. And we will see. So maybe there's an upside there. And I think you had a question also on the so I think that was the question on scrap, right? The question on EU auto, yes. So the first thing to do is, for us, we're not going to invest gross capital in automotive, okay?

And we have not recently, and we are not going to do that anytime soon given where the markets are and the uncertainty. So now it's a matter of how do we best use the capacity we have. As you know, 80% of the assets, if not more, that make auto are used also for other products like can sheet to mention. And we believe that we have this opportunity to make more can sheet. And we have it both in North America and Europe. So that's very much in play for us, and we are fully ready to do that. If anything, last year, we passed on some volume opportunities, quite significant in can sheet because we couldn't produce for plenty of reasons, starting with the snow event in Muscle Shoals and then some operational issues we had that we don't have anymore.

So we believe we were able to repurpose capacity quite efficiently. And then, obviously, if there's no limited business for automotive, well, we'll have to be very tricky now. We manage our costs on the auto finishing lines, which are important, but not a huge part of our business. And then finally, you mentioned, well, aluminum is going to be so expensive that maybe people will switch away from aluminum. Well, steel is getting expensive too, by the way. Historically, it's quite interesting to note that people look at aluminum as being volatile because it's quoted daily, and plastics and steel are less transparent. Actually, when you look at the volatility of input materials, plastics and steel are more volatile than aluminum, number one.

So, as a user, and I've got to make a choice of what I'm going to use, I get more stability, and I can hedge it, by the way, the volatility, which is much more difficult for the other ones. So, I got a material that I better know what it's going to cost me. The second point to remember is that aluminum, even today, even if you were to put the Midwest Premium at $1,000 plus a ton, it is still less expensive than it was in 2007. And there was no change in the packaging mix happening from 2005 to 2008 or 2006 to 2007 because of changes in the price of material. And finally, I'll submit that it is a very small part of the package of the finished product, right?

There's many more choices than just how much the price of that beverage can is going to be next quarter that goes into the choice of packaging. I mean, you've got the whole infrastructure, the filling lines that you've got to handle, and they require capital. You've got the distribution channels. You've got consumer preferences. You've got the shelf space. All these questions are, and then more, right? All these questions that need to be addressed. I don't want to be casual and say that when James Quincey says, "Well, we can also use other materials," it doesn't mean it. But I think it takes a very substantial shift in relative competitiveness of materials for such changes to happen, and then they happen at a slow pace, if they do. Did I answer your questions, Timna?

Timna Tanners (Managing Director for Equity Research)

No, that's helpful, Jean-Marc. Thanks for the additional context. Thank you.

Jean-Marc Germain (CEO)

Sure. Thank you. You're welcome.

Moderator (participant)

Thank you. At this time, we currently have no further questions. So I'll hand back to Jean-Marc for any further remarks.

Jean-Marc Germain (CEO)

Thank you, everybody, again, for your interest in Constellium. As you can tell, 2024 was not a fun year for us. It was disappointing in terms of outcome. I think we can say, and I hope we've convinced some of you that we're on a strong footing to resume our growth, and we've got a clear path ahead of us. The path ahead of us relies on things that are really, a lot of them, a lot of them are under our control. We're excited about the years coming ahead of us, and we look forward to updating you on our process in the next quarter. Thank you so much, everybody. Bye-bye.