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KA

KAISER ALUMINUM CORP (KALU)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 revenue and earnings were steady sequentially with modest YoY improvement in sales: Net Sales $765.4M vs $747.7M in Q3 and $721.7M in Q4’23; Adjusted EBITDA $50.2M with 14.0% margin vs 13.9% in Q3 and 14.3% in Q4’23 .
  • Mix was the swing factor: Packaging conversion revenue rose YoY on higher shipments but dipped sequentially; Aerospace/high-strength fell YoY on supply chain destocking; General engineering held relatively stable; Automotive benefited from mix/pricing despite lower volume .
  • 2025 outlook guides consolidated conversion revenue +5% to +10% and +50–100 bps EBITDA margin expansion, with ~60% of FY EBITDA in 2H’25—driven by the Warrick fourth roll coat line (packaging) and Trentwood Phase VII (aero/general engineering) ramps .
  • Estimate comparisons: S&P Global consensus data was unavailable at the time of analysis due to vendor request limits, so beats/misses vs Street cannot be assessed (we attempted to retrieve S&P Global consensus; unavailable).

What Went Well and What Went Wrong

  • What Went Well

    • Margin execution continued: Adjusted EBITDA margin reached 14.0% (conversion revenue basis), up sequentially vs Q3 and in-line YoY; management emphasized a second consecutive year of margin expansion and a multi-year path back toward mid-20% margins .
    • Packaging demand and strategic mix shift: Packaging shipments rose and multi-year coated product push (fourth roll coat line) positions 2025 for 20–25% packaging conversion revenue growth on just 3–5% shipments growth, lifting consolidated margins 300–400 bps at full run rate .
    • Strong liquidity and capital allocation: YE liquidity of $572M, no revolver borrowings, capex to normalize (~$125M in 2025) and estimated >$100M 2025 FCF; dividend maintained at $0.77 .

  • What Went Wrong

    • Aerospace/high-strength softness: Q4 conversion revenue down ~10% YoY on an ~11% shipments decline amid broader supply chain challenges and OEM inventory corrections; management expects 2025 aero shipments/conversion revenue down ~5–7% before a 2026 ramp .
    • General engineering price and import pressures: Segment remained relatively stable, but pricing faced uneven demand/import headwinds; plate inventories still elevated (expected to normalize by midyear) .
    • Tight scrap spreads and LIFO volatility: Tight scrap spreads muted sourcing benefits; frequent LIFO noise in 2024 prompted evaluation of moving to FIFO/average cost to reduce earnings volatility .

Financial Results

MetricQ4 2023Q3 2024Q4 2024
Net Sales ($M)$721.7 $747.7 $765.4
Conversion Revenue ($M)$361 $362 $358
Adjusted EBITDA ($M)$51.6 $50.4 $50.2
Adjusted EBITDA Margin (%)14.3% 13.9% 14.0%
Diluted EPS (GAAP) ($)$0.47 $0.74 $0.43
Adjusted EPS ($)$0.60 $0.51 $0.33
Shipments (mm lbs)284 292 292

Notes: Adjusted EPS and EBITDA reflect non-run-rate (NRR) exclusions; Q4’24 adjusted net income $5.6M (recon) vs $6M (rounded in highlights) .

Segment conversion revenue (Quarterly)

Segment Conversion Revenue ($M)Q2 2024Q3 2024Q4 2024
Aerospace/High-Strength$133 $128 $132
Packaging$119 $128 $125
General Engineering$83 $76 $74
Automotive Extrusions$33 $29 $27

KPIs and realized pricing

KPIQ4 2023Q4 2024
Shipments (mm lbs)284 292
Net Sales ($/lb)$2.54 $2.62
Hedged Cost of Alloyed Metal ($/lb)($1.27) ($1.39)
Conversion Revenue ($/lb)$1.27 $1.23

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Consolidated Conversion RevenueFY 2025Not previously quantified+5% to +10% vs 2024 New
Adjusted EBITDA MarginFY 2025Not previously quantified+50 to +100 bps vs 2024; ~60% of FY EBITDA in 2H New
Packaging ShipmentsFY 2025Not previously quantified+3% to +5% YoY New
Packaging Conversion RevenueFY 2025Not previously quantified+20% to +25% YoY (2H-weighted) New
Aerospace/High-StrengthFY 2025Not previously quantifiedShipments and conversion revenue down ~5%–7% YoY (destocking) New
General EngineeringFY 2025Not previously quantifiedVolumes and conversion revenue +5% to +10% YoY New
Automotive Conversion RevenueFY 2025Not previously quantified+3% to +5% YoY; shipments -5% to -7% New
CapexFY 2025$100–$125M discussed for future~$125M (Warrick roll coat, Trentwood Phase VII) Maintained vs range
Cash TaxesFY 2025Low-mid 20% ETR commentary in prior; NOL usage ongoingCash taxes $5–$7M; NOLs utilized as of YE’24 Update
Inventory AccountingAssessment—Evaluating alternatives to LIFO; update by Q1’25 results New
DividendQuarterly$0.77 declared previously$0.77 declared Jan 14, 2025; paid Feb 14, 2025 Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2 and Q-1)Current Period (Q4 2024)Trend
EBITDA margin trajectoryPath to 20%+ via metal sourcing (+150–200 bps) and coated products (+300–400 bps); execution underway Reiterates multi-year path toward mid-20% margins; second consecutive year of expansion Improving
Packaging roll coat #4Commissioning and qualification to begin around Q4’24/Q1’25; margin lift of 300–400 bps at full run rate Shipments +3–5%; conversion revenue +20–25% in 2025; full run-rate benefits in 2H’25, sustainable thereafter Positive inflection in 2H’25
Aerospace destockingCautious outlook for 2024; OEM build rate issues; near-term down 2–3% in 2024 2025 shipments/CR down ~5–7%; 2026 production expected to increase materially; Trentwood Phase VII adds capacity Near-term headwind; medium-term tailwind
General engineeringDestocking ended in long products; stable demand, plate inventories elevated; PMI contraction watch PMI moved into expansion in Jan; volumes/CR +5–10% expected; plate inventories normalize by midyear Stabilizing to improving
Automotive exposureMix/pricing offset volume; SUV/truck skew benefiting CR +3–5% with 5–7% lower shipments; contract resets favorable; SUV/truck skew continues Stable to modestly positive
Scrap spreads/metal sourcingStrategy in place; spreads compressed, timing uncertain Modeled to low end of +150–200 bps benefit; upside if spreads improve Watch for upside
Tariffs/tradeMomentum building could aid NA manufacturing Recent announcements viewed neutral-to-positive; not in guidance Potential tailwind
Inventory accounting (LIFO)LIFO charges created quarterly noise Considering FIFO/average; update before Q1’25 results Reduce volatility

Management Commentary

  • “Our results for the year met our expectations for both conversion revenue and margin expansion... second consecutive year of EBITDA margin expansion... expanded by 460 basis points since the low established during the pandemic in 2022.”
  • “We are excited to be commissioning the new roll coat line in our packaging operations... complete the Phase VII expansion at our Trentwood rolling mill in the second half of 2025.”
  • “We expect our full year consolidated conversion revenue to increase 5% to 10% and EBITDA margin to be up 50 to 100 basis points year-over-year... around 60% of full year EBITDA expected in the second half.”

Q&A Highlights

  • Scrap spreads and tariffs: Guidance embedded low-end benefit from metal sourcing (+150–200 bps) and excludes tariff impacts; management views recent tariff developments as neutral-to-positive overall; import pressure already easing .
  • Aerospace trajectory: OEM destocking to weigh on 2025 (down ~5–7%), but build rates should improve through the year; strong contracts mitigate effects; larger ramp in 2026 .
  • Packaging pricing/mix: Q4 pricing down due to mix; customers “screaming for more metal”; coated mix shift drives conversion revenue up 20–25% in 2025 with modest shipment growth .
  • Midwest premium pass-through: Minimal lag (≤30 days) for most businesses; spreads/margins historically resilient through metal up/down cycles .
  • Accounting and taxes: Evaluating LIFO alternatives (FIFO/average) to reduce volatility; NOLs utilized by YE’24; 2025 cash taxes $5–$7M .

Estimates Context

  • Street consensus (S&P Global) for Q4’24 EPS, revenue, and EBITDA was unavailable due to vendor request limits at retrieval time; we therefore cannot quantify beats/misses vs estimates in this recap. We attempted to fetch S&P Global consensus; unavailable at time of analysis.
  • Implications: Given 2H-weighted 2025 setup and segment guides (packaging up strongly on conversion revenue, aerospace modest down, general engineering/auto modest up), estimate revisions may shift mix toward higher 2H weighting and lift FY margin assumptions; tariff upside and scrap spread normalization represent optionality not embedded in guidance .

Key Takeaways for Investors

  • 2H’25 setup is the core catalyst: ~60% of FY EBITDA expected in 2H as Warrick coated products and Trentwood Phase VII ramp; watch commissioning/qualification milestones and contract finalizations in Q1/Q2 .
  • Packaging is the earnings driver: +20–25% conversion revenue in 2025 on +3–5% shipments indicates material mix uplift; at full run rate, coated mix adds 300–400 bps to consolidated EBITDA margin .
  • Aerospace near-term digestion, 2026 acceleration: Expect 2025 down ~5–7% with OEM destocking; positioning and capacity expansion align with higher production rates in 2026 .
  • Margin journey intact: Two years of expansion achieved; path to mid-20% over time via coated mix, metal sourcing, operating efficiencies; near-term scrap spreads could provide upside if they normalize .
  • Balance sheet/liquidity supportive: $572M liquidity, no revolver draws, capex normalizing to ~$125M in 2025, >$100M FCF targeted; dividend ($0.77) maintained .
  • Watch policy and accounting: Tariff framework likely neutral-to-positive; inventory accounting shift away from LIFO could reduce earnings volatility and improve comparability .
  • Trading lens: Near-term prints may be choppy given aero destocking and 1H packaging qualification; positioning into expected 2H acceleration could be key for momentum as coated mix ramps and margin expands .