KAISER ALUMINUM CORP (KALU)·Q1 2025 Earnings Summary

Executive Summary

• Q1 2025 was strong on profitability: Adjusted EPS of $1.44 and Adjusted EBITDA of $73.4M; EBITDA margin expanded to 20.2% on conversion revenue, aided by ~$21.1M favorable metal price lag and improved mix .
• Versus Wall Street, EPS and EBITDA materially beat while revenue was slightly below consensus; management raised full‑year Adjusted EBITDA outlook to +5%–10% vs recast 2024, and expects 50%–55% of EBITDA in H2 (prior ~60%) . Results vs consensus shown below (S&P Global).
• Packaging capacity additions (Warrick 4th coat line) and Trentwood Phase VII remain key 2025 catalysts; management reiterated Confidence in aerospace recovery and general engineering demand tailwinds from trade policy dynamics .
• Liquidity remained strong ($577M), capex guidance $120–$130M, and >$100M FCF expected in 2025; dividend maintained at $0.77 per share .
• Narrative for stock: visible near‑term profitability tailwind from metal lag and mix, plus H2 ramp from coated packaging and Trentwood; investors should weigh sustainability of margins as the metal lag normalizes and commissioning/qualifications progress .

What Went Well and What Went Wrong

What Went Well

• EBITDA/margin expansion: Adjusted EBITDA rose to $73.4M and margin to 20.2% on conversion revenue, driven by mix, pricing, and ~$16M YoY increase in metal lag gain following tariff‑driven MWTP spike .
• Strategic projects on track: “finalizing commissioning” of Warrick 4th coating line and preparing for customer qualifications; Trentwood Phase VII equipment onsite with expected completion later in 2025 to support aerospace and general engineering recovery .
• Liquidity and deleveraging: $577M liquidity, no revolver borrowings at quarter end, net leverage improved to 3.9x and tracking to 2.0–2.5x target .

What Went Wrong

• Aerospace/high‑strength softness: Conversion revenue fell to $120.5M on shipments down ~10% YoY, impacted by commercial OEM order patterns and supply chain disruptions; management sees recovery through 2025 .
• Packaging shipments down 9% YoY as Kaiser pivoted from bare to higher value‑added coated products during commissioning/qualification; near‑term volume impact before H2 ramp .
• Revenue miss vs consensus: Net sales of $777.4M came in modestly below Street while EPS/EBITDA beat; the metal lag tailwind makes comparability to core run‑rate a focus for analysts (Street data shown below from S&P Global) .

Financial Results

Headline metrics across quarters (oldest → newest):

Segment conversion revenue and shipments (oldest → newest):

KPIs and cash/liquidity:

Estimate comparison (S&P Global; consensus vs actual, Q1 2025):

Values with asterisk retrieved from S&P Global.

Observations:

• EPS and EBITDA beats were significant; revenue modestly below Street. Mix and the ~$21.1M metal lag tailwind were key drivers of the profitability beat .

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “2025 is off to a solid start… finalizing the commissioning of the fourth coating line… completing the Phase VII expansion at our Trentwood rolling mill later this year… strong market position, persistent focus on cost discipline, and steady deleveraging” — Keith A. Harvey, CEO .
• “Adjusted EBITDA… improved… driven by improved pricing/mix ($3M) and increase in metal lag gain ($16M)… spike in Midwest transaction price following the announcement for increased aluminum tariffs” — Neal West, CFO .
• “Our geographic footprint and supply chain are predominantly North American, and our contracts are designed to be metal‑neutral… [tariffs] should have a neutral to modestly positive impact on Kaiser” — Keith A. Harvey .
• “We expect to generate more than $100 million of free cash flow for the full year of 2025… capital expenditures $120–$130M” — Neal West .

Q&A Highlights

• Margin trajectory ex‑metal lag: Management framed core margin progression toward mid‑20s over time via investments (packaging/coated, Trentwood, metal sourcing) + 300–400 bps uplift at full run rate; near‑term margin viewed in 16%–17% area as projects ramp .
• Packaging cadence: Q2 focused on proving the line and customer qualifications; H2 ramp with new contracts accelerating into 2026; pivot toward coated material driving value‑add .
• Automotive resilience: Exposure to trucks/SUVs platforms, new programs, price resets; limited sensitivity given auto is a smaller business for Kaiser .
• Aerospace destocking status: Mid‑way through destock; build rates at major airframers improving (moving toward higher rates into year‑end/2026) .
• Tariffs and supply chain: Domestic footprint and metal‑neutral contracts underpin resilience; trade dynamics channel demand to domestic products .

Estimates Context

• Q1 2025 vs S&P Global consensus: Primary EPS $1.44 vs $0.596*; Revenue $777.4M vs $800.1M*; EBITDA $73.4M vs $53.27M*.
• Implications: Street likely raises FY25 EPS/EBITDA on demonstrated mix gains and volume recovery trajectory, but may normalize margins for H2 as metal‑lag tailwind fades; management’s lowered H2 weighting (50%–55% vs prior ~60%) should recalibrate quarterly cadence expectations .
  Values with asterisk retrieved from S&P Global.

Key Takeaways for Investors

• Strong profitability beat and margin expansion in Q1, propelled by metal lag and higher value‑add mix; monitor sustainability as tariffs and MWTP dynamics evolve .
• H2 2025 is the inflection for volume/mix as coated packaging capacity ramps and Trentwood Phase VII completes; expect back‑half weighted earnings (50%–55%) .
• Aerospace remains a recovery story: near‑term destocking, improving build rates, and Trentwood capacity set up FY26 margin adds; business jet/defense/space demand steady .
• Capital allocation remains disciplined: $120–$130M capex, >$100M FCF, dividend at $0.77/share, deleveraging toward 2–2.5x .
• Segment mix evolution: Packaging shipments temporarily lower due to coated pivot, but conversion revenue rising; general engineering benefits from trade‑related import uncertainty, supporting price/mix .
• Accounting change (LIFO→WAC) improves comparability and raised historical inventory/retained earnings; be mindful in YoY analyses across 2023–2024 .
• Trading lens: Near‑term catalysts include coated line qualification milestones, H2 ramp guidance updates, and aerospace build‑rate improvements; risk factor is normalization of metal lag and execution timelines for commissioning .