Kaiser Aluminum (KALU) Misses Q3 EPS by 25c

Kaiser Aluminum (NASDAQ: KALU) reported Q3 EPS of $1.02, $0.25 worse than the analyst estimate of $1.27. Revenue for the quarter came in at $321 million versus the consensus estimate of $333.46 million.

Fourth Quarter and Full Year 2016 Outlook

“As we look to the fourth quarter, while we anticipate normal seasonal demand weakness and year-end uncertainty, we also expect to benefit from delivery of third quarter in-transit inventory,” said Mr. Hockema. “In addition we are experiencing increasing competitive price pressure on non-contract business orders for both general engineering plate and aerospace plate.

“For full year 2016 we continue to anticipate approximately 5% year-over-year value added revenue growth for aerospace and high strength applications. With recently announced fourth quarter automotive facility shutdowns as well as continued delays in the ramp-up of several new bumper programs, we are reducing our value added revenue growth outlook for automotive extrusions from approximately 6% to approximately 2% year-over-year. We expect total value added revenue growth of approximately 3% to 4% year-over-year, slightly lower than our previous outlook, with improvement in adjusted EBITDA and EBITDA margin driven by sales growth and continued improvement in manufacturing efficiencies,” concluded Mr. Hockema.

Long-Term Outlook

“Looking forward to 2017, our lead times for heat treat plate are down to six weeks compared to much longer lead times earlier in the year, and we have strong indications that the aerospace supply chain will experience destocking in 2017. As a result, we expect aerospace industry demand for 2017 will be off slightly from 2016. We are already experiencing competitive price pressure on non-contract heat treat plate business,” said Mr. Hockema.

“Recently, we updated our industry demand outlook for our aerospace and high strength served market applications to a 5% compound annual growth rate (“CAGR”) from 2016 to 2019. We anticipate the inventory overhang will be largely addressed in 2017, and supply/demand dynamics will return to equilibrium in 2018.

"Our recently updated three-year automotive industry demand outlook is for average annual demand growth of 6% from 2016 to 2019 driven by increasing automotive aluminum extrusion content. In 2017, we anticipate double-digit value added revenue growth for our automotive applications as we launch new programs and existing programs continue to ramp up.

“Looking beyond 2017, we continue to see strong secular growth for our aerospace and high strength and automotive end-markets. In addition to capitalizing on these secular growth opportunities, we continue to benefit from investments we have made over the years to improve efficiency and overall throughput. We anticipate that the Trentwood modernization project that was announced in late 2015, along with other planned investments, will provide the next step in advancing our overall manufacturing efficiencies and product quality, further expanding our capacity and enhancing our competitive strength,” concluded Mr. Hockema.

For earnings history and earnings-related data on Kaiser Aluminum (KALU) click here.

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