Kaiser Aluminum (KALU) Misses Q2 EPS by 44c, Revenue Beats

July 21, 2021 4:32 PM EDT

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Kaiser Aluminum (NASDAQ: KALU) reported Q2 EPS of $1.00, $0.44 worse than the analyst estimate of $1.44. Revenue for the quarter came in at $741 million versus the consensus estimate of $519.18 million.

Outlook:

The Company anticipates improving trends across its end markets with strong secular demand growth for aerospace, packaging, and automotive along with solid market dynamics continuing to support growth in its general engineering applications.

Aerospace is beginning to build positive momentum as commercial air travel recovers and aerospace/high strength demand is expected to continue improving through the balance of 2021 driven by growth in defense related programs and business jet production. The Company continues to expect the aerospace market to recover to record 2019 levels by 2023/2024 timeframe and then resume its pre-pandemic 3% to 4% CAGR.

Demand for the Company’s automotive applications remains robust with multiple new programs successfully launched and underway. Over the longer term, the Company anticipates a greater than 5% CAGR for automotive demand growth driven by light weighting and fuel efficiency with further opportunities as the shift to electric vehicles continues.

Demand for the Company’s general engineering applications remains strong, led by service center restocking and stronger demand as the markets recover from the pandemic. In addition, as the Company has previously noted, reshoring of supply lines in North America as OEM’s shift supply strategies to have a larger portion of their material needs sourced domestically provides significant upside for further growth opportunities.

In addition to diversifying the business, the Company’s re-entry into packaging through the Warrick Rolling Mill provides a significant opportunity for further long-term growth as food and beverage packaging continues to shift to aluminum in response to growing consumer demand. North American aluminum packaging markets are expected to remain in deficit for the foreseeable future as the strongly preferred, North American supply struggles to keep pace with North American demand. The Company anticipates a 3% to 5% CAGR over the next several years.

“With a diversified portfolio and strong secular growth trends in each of our end markets, we plan to invest in several strategic growth initiatives,” said Mr. Harvey. “In packaging, we plan to meet the rapidly increasing needs of our customers with a series of strategic investments backed by strong, long-term contracts reflecting significant margin improvement facilitated by the current market environment, improved efficiencies and expected synergies. The initial investment of $150 million at our Warrick facility will be for an additional roll coat line that is expected to be qualified and operational by early 2024, with other investments to follow as we continue to evaluate customer demand requirements.

“In addition, as end market demand further improves we expect to proceed with the previously discussed $225 million, Phase VII expansion project at our Trentwood facility, which will increase capacity approximately 25% to meet the needs of our flat-rolled aerospace and general engineering customers well into the remainder of this decade, while further enhancing product quality and improving efficiencies. Finally, smaller capital investments of approximately $25 million will further enhance our ability to support growth in automotive and general engineering long products. We anticipate the total $400 million of growth focused capital spending will occur over the next several years, funded by a combination of our operations and strong balance sheet.

“As we look forward, with the expected recovery rates of our end markets and the planned strategic investments, we will be well-positioned over the longer-term to deliver value added revenue approaching $2.0 billion with a mid to high 20% adjusted EBITDA margin,” concluded Mr. Harvey.

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



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