Kaiser Aluminum Corporation

Greetings and welcome to the Kaiser Aluminum Corporation first quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kim Orlando, Investor Relations. Thank you. You may begin.

Thank you. Hello, everyone, and welcome to Kaiser Aluminum's first quarter 2026 earnings conference call. If you have not seen a copy of our earnings release, please visit the investor relations page on our website at kaiseraluminum.com. We have also posted a PDF version of the slide presentation for this call. Joining me on the call today are Chairman, President, and Chief Executive Officer, Keith Harvey, and Executive Vice President and Chief Financial Officer, Neil West. Before we begin, I'd like to refer you to the first four slides of our presentation and remind you that the statements made by management and the information contained in this presentation that constitute forward-looking statements are based on management's current expectations. For a summary of specific risk factors that could cause results to differ materially from the forward-looking statements, please refer to the company's earnings release and reports filed with the Securities and Exchange Commission including the company's annual report on Form 10-K for the full year ended December 31, 2025. The company undertakes no duty to update any forward-looking statements to conform the statement to actual results or changes in the company's expectations. In addition, we have included non-GAAP financial information in our discussion. Reconciliations to the most comparable GAAP financial measures are included in the earnings release and in the appendix of the presentation. Reconciliations of certain forward-looking non-GAAP financial measures to comparable GAAP financial measures are not provided because certain items required for such reconciliations are outside of our control and or cannot be reasonably predicted or provided without unreasonable effort. Any reference to EBITDA in our discussion today means adjusted EBITDA, which excludes non-run rate items for which we have provided reconciliations in the appendix. Further, slide 5 contains definitions of terms and measures that will be commonly used throughout today's presentation. At the conclusion of the company's presentation, we will open the call for questions. I would now like to turn the call over to Keith Harvey. Keith?

Thanks, Kim. Good morning, everyone, and thank you for joining us. I'll begin on slide seven. We're very pleased with our first quarter performance. The momentum we carried out of 2025 not only continued, but in several areas, accelerated. As you saw in our earnings release last night, we are raising our full year outlook, reflecting how quickly the improvement we're seeing is coming together as we execute our strategy and move toward our long-term conversion revenue and EBITDA goals. We believe 2026 represents the opportunity to deliver a true step change in performance, and our first quarter results reinforce that view. This quarter delivered another record for EBITDA and EBITDA margins. New capacity installed over the last several years is ramping well. Customer demand has been stronger than we anticipated coming into the year. Lead times across the industry are beginning to stretch, and pricing continues to firm across many of our products. While metal remains at elevated levels, these higher costs, which we pass through, have not led to any signs of meaningful substitution in our markets, and our supply lines for metal remain secure through the balance of the year, which allows us to stay focused on execution rather than availability. There were four key drivers behind the strength of the results we delivered in the quarter. First, customer activity across all of our end markets exceeded expectations. As lead times extended and pricing firmed, the environment has increasingly rewarded reliability and service. These are exactly the conditions where Kaiser differentiates itself and where our operating discipline creates opportunities to win incremental business. Second, we continue to see meaningful mix improvement at our rolling mill, Warwick. The mix shift towards higher value-added coded volume is fundamental to Warwick's long-term success and underpins our confidence in the margin and EBITDA trajectory of the business. Performance has been encouraging, and demand for coded products remains strong. Based on what we're seeing today, we expect this mix improvement to continue through the balance of the year. Operational performance significantly improved across our operations. With significant startup costs and related disruptions to the operations now behind us as we completed our new investments, strong operational financial performance is returning to more historical levels. Excluding metal lag gains in the year-over-year quarterly results, we saw an approximate 850 basis points margin improvement due to operational performance gains alone. And finally, aluminum prices moved up meaningfully during the quarter, creating a metal tailwind. While beneficial to our financial results, it's modest relative to the structural improvements underway across the business. As always, we operate on a metal-neutral basis, passing through what we can't control while focusing on conversion, productivity, and disciplined capital deployment. I also would like to point out Kaiser's strong competitive position with the growing use of recycled material across our portfolio, which not only supports our sustainability initiatives, but also creates the environment for strong tailwinds under current conditions. I will continue to remind everyone that these conditions can also reverse and become headwinds should metal prices decline in a volatile market. Neil will cover these points in more detail as he walks through financial details related to the quarter. Neil?

Thank you, Keith. Good morning, everyone. I'll now turn to slide 9 for an overview of our shipments and conversion revenue. Conversion revenue for the first quarter was $404 million, an increase of approximately $41 million, or 11%, compared to the prior year period. Looking at each of our end markets in detail, barrel space and high-strength conversion revenue totaled $131 million, up $10 million, or approximately 8%. primarily reflecting a 9% increase in shipments over last year. Commercial aircraft production continued to recover, supported by higher build rates at our OEM partners. We are seeing signs of destocking now ending on several of our products, albeit certain plate products continue to destock within our commercial aerospace customers. Demand across our other aerospace high-strength applications, including business jet, defense and space remain strong, with improving booking rates. Packaging conversion revenues totaled $157 million, up $30 million, or approximately 24% year-over-year, reflecting a 13% increase in shipments over last year. The shift to coated products is generating higher conversion revenue per pound, and this is supported by strong underlying market demand. In addition, The improvement in shipments also reflects the ramp up of the fourth coding line. As Keith mentioned on our last call, although profitability expected to strengthen meaningfully in 2026, we plan to operate the line at around 80% utilization while we further optimize quality and consistency. General engineering conversion revenue for the first quarter was $87 million, up $4 million or approximately 5% year over year, primarily driven by favorable pricing, partially offset by a 2% decline in shipments. Inventory levels across the channel remain at multi-year lows, positioning us well as these markets improve. Tariff-related reshoring and the differentiation of our customer-focused quality and services, along with our Kaiser Select offerings, are reinforcing a favorable market setup for increasing volumes with improved pricing. And finally, automotive conversion revenue of $29 million decreased by 8% year-over-year on an 8% decrease in shipments. Sustained high consumer borrowing costs and tariff-related uncertainties are dampening conditions across the automotive industry as a whole. However, demand for larger vehicles such as light trucks and SUVs, where our products are primarily targeted in this end market, remain strong among certain buyers. Additional details and conversion revenue and shipments by end market applications can be found in the appendix of this presentation. Now moving to slide 10. Reported and adjusted operating income for the first quarter was approximately $98 million, up approximately $55 million year over year. Reported net income for the first quarter was $63 million, or income of $3.71 per diluted share, compared to net income of $22 million or income of $1.31 per deluded share in the prior year period. After adjusting for pre-tax non-run rate charges of approximately $600,000, adjusted net income for the first quarter of 2026 was $63 million or adjusted income of $3.74 per deluded share compared to adjusted net income of $24 million or adjusted income of $1.44 per diluted share in the prior year period. Our effective tax rate for the first quarter was 24%, compared to 25% in the first quarter of 2025. For the full year of 2026, we continue to expect our effective tax rate before discrete items to be in the mid-20% range. Additionally, we anticipate that 2026 cash tax payments for federal, state, and foreign taxes will be in the to $13 million range. Now turning to slide 11, adjusted EBITDA for the first quarter was $129 million, up $55 million from the prior year period. Adjusted EBITDA as a percentage of conversion revenue improved by approximately 1,200 basis points from the first quarter of 2025 to 31.8%. The year-over-year improvement was primarily driven by $25 million from higher shipment volumes and pricing and a net $34 million improvement in operating costs. This reflects improved scrap utilization and spreads, which was partially offset by higher operating costs. Of the $34 million operating cost improvement, $15 million was attributed to metal lag gain. In addition to our strong underlying operational performance, the first quarter metal lag gain was approximately $36 million. The increase in year-over-year scrap spreads and the metal lag gain reflect higher aluminum prices influenced by the upward pressure in global markets from the conflict in the Middle East, as well as elevated Midwest premium driven by U.S. tariff policy and tight domestic supply. As the year progresses, We remain focused on operational improvements by optimizing efficiencies and further leveraging our recent capital investments to support continued margin expansion. Now turning to slide 12 for discussion of our balance sheet and cash flow. We generated solid free cash flow, which we calculate as operating cash flow less capex of $69 million in the first quarter. despite higher working capital demands and elevated aluminum pricing, resulting in total cash of approximately $30 million and approximately $566 million of borrowing availability and our revolving credit facility. Our resultant liquidity position of approximately $596 million remained strong as of March 31, 2026. As a reminder, our senior notes interest costs have fixed at $54 million annually, and we have no debt maturing until 2030. Given our strong last 12-month EBITDA performance and cash position at the end of the first quarter of 2026, our net debt leverage ratio improved to 2.8 times from 3.4 times at year end, moving us closer to our targeted range of 2 to 2.5 times. We now expect full-year free cash flow to be in a range of $140 million to $150 million. subject to metal price movements and its impact on working capital. Turning to capital allocation, our framework remains focused on driving long-term growth. Our priorities are clear. Discipline organic investment, selective inorganic opportunities, and consistent return to stockholders. Our capital expenditures total $19 million for the first quarter, 2026, and for the full year, 2026, we continue to expect our capital expenditures to be in a range of $120 to $130 million. Finally, on April 13th, we announced that our board of directors declared a quarterly dividend of 77 cents per common share, reaffirming their support for our strategy and focus on delivering sustainable value to our stockholders. 2025 capped our 19th consecutive year of dividend payments, a unique distinction that sets Kaiser apart in the industry. In summary, as we celebrate Kaiser's 80th anniversary, we enter 2026 with strong momentum, solid visibility across our end markets, and the benefit of having completed major growth investments. With this foundation in place, we are focused on harvesting returns, expanding margins through disciplined execution, and generating meaningful free cash flow. I'll now turn the call back over to Keith to discuss our 2026 outlook. Keith?

Thanks, Neil. Let me walk through our end markets and how we're thinking about the remainder of the year as part of that discussion. Turning to slide 14. Starting with aerospace and high strength, demand continues to improve. We saw solid bookings and shipments across the portfolio in the first quarter, and that strength is expected to continue. Destocking headwinds that affected parts of the market last year continue to ease, and improving demand is now the primary driver. A lack of imports is supporting market share gains, and increasing defense and space spending is adding incremental demand across several programs. In fact, demand for our defense and space applications appear to be taking an additional step higher. building on already high levels in 2025. Utilization across the facilities remains high, including the recently completed Phase 7 capacity expansion at our Trentwood rolling facility, driving longer lead times and upward pressure on pricing for non-contractual bookings. Based on this backdrop, we now expect aerospace and high-strength shipments to grow in the range of 15% to 20% this year, with conversion revenue growth of 10% to 15%. In packaging, performance during the quarter was strong, with robust shipments and continued healthy demand in a supply-constrained environment. The fourth coding line advanced further toward full production with eight monthly output records attained since the second half of 2025. This improvement was achieved despite persistent challenges with certain converters we use, particularly related to on-time delivery shortfalls and overall broader performance concerns. Our own execution improved during the quarter, and momentum remains positive, with solid multi-year demand visibility, our focus on increasing the coded mix at Warwick will continue to position conversion revenue ahead of shipment growth as coded products become a larger portion of our mix. This is reflected largely in higher conversion revenue per pound. As you can see in the appendix of this presentation, conversion prices through first quarter have risen by nearly 50% since we acquired the business in 2021 and continue to improve. Given current market conditions, we now expect packaging shipments to grow between 10% and 15% for the year, with conversion revenue growth in the range of 20% to 25%. General engineering is off to a strong start in 2026 as well. Shipments and booking activity were solid across the portfolio. Pricing and lead times are moving out across most products, signaling a healthier demand environment. Generally speaking, low customer inventories and extending lead times create a favorable market backdrop. Specifically on semiconductor plate products, order activity has been encouraging, whereas the destocking overhang that weighed on demand last year has largely transitioned into ensuring capacity is available to keep up with requirements. Based on trends we're seeing today, we expect general engineering shipments and conversion revenue both to increase between 5% and 10% for the year. In automotive, results were in line with expectations. Demand for light truck and SUV, where aluminum pairs well in lightweighting, remains healthy. Our shipments were lower as we prepare for two major outages later this year, focused on equipment repairs, upgrades, and reviewing plans to significantly expand capacity to support aluminum driveshaft demand. As always, these investments are contractually supported by customer commitments and position the business well for future growth. Based on these factors, we now expect shipments and conversion revenue to be flat to down 5% for the year. Now turning to slide 15 and taking all of this together, we now expect conversion revenue to rise 10% to 15% and EBITDA to increase between 20% and 30% year over year. This improvement reflects stronger demand, firmer pricing, improved mix, particularly at WART, and continued strong execution across the portfolio. Overall, we're off to an excellent start in 2026. The fundamentals across our markets are aligning well with the expectations we set heading into the year, and in several cases are exceeding them. The strategy is working, execution remains strong, and the opportunities ahead even more encouraging. With that, We're happy to take your questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from Bill Peterson with JP Morgan. Please proceed with your question.

Yeah, hi. Good morning. Thanks for taking the questions. Nice job on the quarterly execution and the revised guidance. I have a few questions and I guess maybe starting off trying to unpack the first quarter print. You know, better expected metal price lag benefits. Can you impact that versus improving demand story? And I think you might have said some of this too, but versus also the value, the bar pricing power. And maybe more importantly, looking ahead on the revised guidance. Can you help us understand how much, you know, scrap spreads play a role versus mix in the volume impacts that you had called out?

Sure. So good morning, Bill, and appreciate your comments. Let me speak to some of that. If I missed something, just hit me with a specific question again. But the way I look at where we currently are, Bill, I've been trying to pull out the metal lag gains just to understand operationally how we're going. And if I do that in the comparative between the first quarter of last year, first quarter of this year, Last year, if I pulled out the gain and looked at what the EBITDA margin was without the gain, we were around the mid-teens. We were around a 14% or 15% type margin on just the operational side. If I do the same thing with the first quarter of this year and pull out the $36 million gain that we called out, that margin improvement has moved up to about 24%. So we're driving the business operationally, which includes not only the type of mix and volume and pricing we expected in the business, but we also have underlying better performance at the facilities. Now, that also captures in the traditional business. We're still counting We're looking at metal profits as a component of that, of which we are taking advantage of spreads, but we had spread opportunity. And these are beyond the metal lag that we call out. So all in all, we've got all the pieces performing much better and as expected. Now, again, I think what was key there, and I think sometimes gets lost, last year we had We've called out for the full year. We had about $47 million of one-time costs, startup costs, and things that we had identified. We have those pretty much behind us now. So we're getting some of that cost back into the system. The markets are improving, and we're executing better with all the chaos behind us. So that's my general thoughts and how I look at it. With going forward, how do we look at these metal lags, Bill? You know, what we have stated, like in February, we said, look, we're taking what the current quarter outlook does for us, and then we're looking at the forward metal curves. And the forward metal curves, especially as we looked at in our last call, seem to drop off proportionally, okay, for the market coming back into alignment. What I will say is that those forward curves are remaining fairly elevated. So I'm sure that's representative of all the volatility in the market and so forth. So we could have some continued metal lag gains that are going to aid us. But again, we're differentiating between that and operational performance. And so when I look at the margin growth based on how well we're doing versus just these tailwinds that have taken place, you know, we've got almost a 75% improvement quarter over quarter, year over year, I mean, in Q1. So that's what I'm most pleased about and focused on and I believe is going to long-term drive our business.

Well, thanks for that, Keller. And I don't believe you spoke to it, but there has been some changes to the Section 232 derivative tariffs that have been kind of refined somewhat. Are you able to comment on what impacts this change may have on your business, including supporting pricing or other kind of customer feedback that you're hearing thus far?

Yeah, you know, Bill, I've looked at it and tried to understand, you know, where that can come to play. And I think where I come down is this. I actually think it enhances the the domestic supply position. A lot of those semi-finished type products coming in where a 25% would apply are really going to impact the imports, I would say, for the most part. And the 232 are hanging in quite well. I think we're on the verge of continuing to see reshoring continue to elevate here. We're seeing more factory demand. We're seeing growth in semiconductors start to come off, perhaps if we called the floor last year. I think it's going to double year over year this year, has the potential to double year over year next year. So I think that strong demand and that more of a, I would say, of a hindrance for the imports only leads us to perhaps a better market condition with regards to demand and a pricing environment.

Okay, maybe if I can ask one more, I can get back in the queue. But on the new assumptions that are baked into the updated AERO and high-strength guidance, it sounds like you're increasingly more confident in the commercial AERO demand. I think you're saying either the destocking is done or nearly finished. I guess, can you comment on that, and then maybe how that compares with interest, or how the impact of your guidance would be in terms of the important environment being less pronounced, or on the other side with defense being, sounds like you're feeling incrementally better about defense as well.

Yeah, and I think that's really it, Bill. We're seeing defense in some programs. We expected perhaps a doubling. we're actually seeing quadrupling of expected demand coming our way. I can say that Aero, I happened to be watching CNBC yesterday morning, and Kelly Ordner was on from Boeing, and he's the one that publicly called out the rise in build rates on the single aisle from 42 to 47 as expected continued progress on other variants that are being up for approval. So we're seeing the commercial definitely get a little stronger. But we're also seeing space, it's a cliche, but we're seeing space take off. And so all these things are hitting around the same time. And, you know, we got into that same environment in 2019 when we saw not only the aerospace start to take off, but also on the GE space. begin to rise, and that created a pretty pleasant environment for us, and I can foresee the same thing beginning to occur here.

Okay, thanks for the call. Good execution and the market environment is turning positive for us, so I appreciate the chance to ask some questions.

Thank you, Bill, and appreciate it.

Our next question comes from Samuel McKinney with KeyBank Capital Markets. Please proceed with your questions.

Hey, good morning guys and congrats on the strong quarter. Hi Sam. Thank you. I'm going to follow up on the last question on the arrow and high strength market. You had enough confidence in the end market trends to raise the shipment outlook there for the year. You touched on the production ramp at the major OEMs, but if you could just talk to us a little bit about where you think we are in that destocking restocking cycle within that end market right now.

Yeah, if I had to, if I had to go from one to 10, or let's do it this way. I think the baseball analogy goes pretty well. If I had to say what inning we're in, I'd say we're coming up in the seventh inning or so with regard to demand for plate-type products. And I believe we're in the ninth and heading into other extended innings here on the other products and other markets that we participate in. That includes defense, you know, Bizjet, Space, and the other products. So I would say, especially on the aero side, aero and high-strength, that's where we're currently at. And so when I take a look at first quarter results and I look back, we claimed a new record in 2024 for aero and high-strength, and then we got into some of that destocking last year. But if I compare our first quarter results to the first quarter of 2024, they're very similar. And so that's a really good, strong start, stronger than what we had last year. And what I would say is our outlook with the activity that we're seeing currently and expectations, we're going to be growing that pretty much quarter over quarter through the remainder of the year. So I'm expecting the quarterly results to continue to improve and the outlook that we're seeing right now are supporting that. Lead times are moving out. They've more than doubled in the last few months. And we're seeing that with fairly record low inventories outside of the commercial players. So that bodes pretty well for long-term demand. So we're going to see the similar strength on the GE products and so forth.

Okay. Thanks. That's helpful. And then on a per-pound basis, you saw some nice sequential expansion in packaging conversion revenue this quarter. Just talk to us about the progress you've made and expect to make over the balance of this year. on shifting to more coated capacity at Warwick, as well as the reception from your customers on the product coming off that new roll coat line?

Sure. What we stated, Sam, is that we have a target of 80% utilization of that line this year. So, you know, naturally, your first question is, with such strong demand, why don't you ramp it to 100? Well, I can tell you, part of the mantra for Kaiser is on-time delivery. and so forth. And over the last couple of years, we've not been meeting our expectations, much less our customers' expectations in that regard. So we're going to ramp up and make sure that our service levels improve in a very similar basis of a ramp up there. And if we can get those earlier in the year, I'm confident that demand will be there to supplant additional shipments through there. Now, but with regard to the customer reception, we've had excellent reception to the quality of the product that's come off of that line. And we've been qualifications well through a number of those. And you can see as we begin to ramp that up We still have a ways to go and store more upside for us from that potential. And again, 80% is the target. There remains obviously another 20% beyond that, which we intend to continue to focus on that move to coded. And so that fits us well. Our customers are receptive to this. They appreciate it. Demand is as strong as we've ever seen it. And so I would say at this point we're ramping along nicely and should continue to see growth throughout the quarter through the balance of the year in that category.

All right. Thanks, guys. Appreciate it. Best of luck.

Yeah, thanks, Sam. We have reached the end of our question and answer session. I would now like to turn the floor back over to Keith Harvey for closing comments.

Thanks, Maria. We thank you for your continued interest in the company. I'd like to also thank all the Kaiser team members for their contributions in helping develop and execute what has long been a very successful strategy. I look forward to updating you all on our progress in July. Have a great day.

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