Constellium SE

Good day and thank you for standing by. Welcome to the Constellium third quarter 2025 results conference call and webcast. At this time all participants are in a listen-only mode. After the speaker's presentation there will be a question and answer session. To ask a question during the session please press star 1 and 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question please press star 1 and 1 again. Please note that today's conference is being recorded. I would now like to have the conference over to your speaker, Jason Hershiser, Director of Investor Relations at Constellium. Please go ahead.

Thank you, Razia. I would like to welcome everyone to our third quarter 2025 earnings call. On the call today, we have our Chief Executive Officer, John Mark Germain, our Chief Operating Officer and CEO appointee, Ingrid Yerd, and our Chief Financial Officer, Jack Guo. After the presentation, we will have a Q&A session. A copy of the slide presentation for today's call is available on our website at Constellium.com, and today's call is being recorded. Before we begin, I'd like to encourage everyone to visit the company's website and take a look at our recent filings. Today's call may include forward-looking statements within the meaning of the Private Security Litigation Reform Act of 1995. Such statements include statements regarding the company's anticipated financial and operating performance, future events, and expectations. and may involve known and unknown risks and uncertainties. For a summary of specific risk factors that could cause results to differ materially from those expressed in the forward-looking statements, please refer to the factors presented under the heading Risk Factors in our annual report on Form 10-K. All information on this presentation is as of the date of the presentation. We undertake no obligation to update or revise any forward-looking statement as a result of new information, future events, or otherwise. except as required by law. In addition, today's presentation includes information regarding certain non-GAAP financial measures. Please see the reconciliations of non-GAAP financial measures attached in today's slide presentation, which supplement our GAAP disclosures. And with that, I would now like to hand the call over to John Mark.

Thank you, Jason. Good morning, good afternoon, everyone, and thank you for your interest in Constellium. I want to begin by addressing our executive leadership change that was announced this morning. On December 31st, I will be retiring from my role as chief executive officer of Constellium, and I will also be stepping down from my position as a director on the board at the same time. I plan to continue to serve as a special advisor to board and management in 2026. Ingrid Jurg will assume the role of chief executive officer of Constellium, and the board will appoint Ingrid as a director for the remaining term of my directorship. This leadership change comes following a multi-year planning process, and I will continue to support the board and the management for a seamless transition in 2026, as I just said. Since I joined the company almost 10 years ago, Ingrid and I have worked very closely together, including the last two plus years, during which Ingrid was in charge of the company's operations in her capacity as the Chief Operating Officer. With more than 25 years of experience in the aluminum industry, including the last 10 with Constellium, Ingrid possesses deep industry knowledge, proven operational expertise, a wide network across our industry, and strong commitment to our stakeholders, including our customers, employees, and our shareholders. Ingrid has also contributed significantly to the development of the company's strategy and its long-term objectives. As you can see, our results and our outlook are strong today, and I am confident that Ingrid will continue to build on this strong foundation and lead Constellium to what will be a bright future for our shareholders. Okay, now turning to slide five now, let's discuss the highlights from our third quarter results. I would like to start with safety, our number one priority. Our recordable case rate in the third quarter was 1.7 per million hours worked, and our year-to-date recordable case rate remains at 1.8 per million hours worked. While this performance remains best in class, we all need to constantly maintain our focus on safety to further improve. Turning to our financial results, shipments were 373,000 tons, or up 6%, compared to the third quarter of 2024 due to higher shipments in each of our operating segments. Revenue of $2.2 billion increased 20% compared to the third quarter of 2024 due to higher shipments and higher revenue per ton, including higher metal prices. Remember, while our revenues are affected by changes in metal prices, we operate a pass-through business model, which minimizes our exposure to metal price risk. Our net income of $88 million in the quarter compares to net income of $8 million in the third quarter last year. The main driver of the increase was higher gross profit in the quarter versus last year. Compared to the third quarter last year, adjusted EBITDA increased 85% to $235 million in the third quarter this year. though this includes a positive non-cash impact from metal price lag of $39 million. If we exclude the impact of metal price lag, which, as you know, is the way we view the real economic performance of the business, we achieve an adjusted EBITDA of $196 million in the quarter. This is a new third quarter record for us, and it is up 50% versus the $131 million in the third quarter last year. Moving now to free cash flow. Our free cash flow in the quarter was strong at $30 million. During the quarter, we returned $25 million to shareholders through the repurchase of 1.7 million shares. Our leverage at the end of the third quarter was 3.1 times or down about half a ton from the peak last quarter. We delivered strong results this quarter that were above our own expectations despite the uncertain economic environment and continued demand weakness across many of our end markets. We remain focused on strong cost control, free cash flow generation and commercial and capital discipline. Overall, I am very pleased with our third quarter and year-to-date execution and performance. It is not on the slide here, but I wanted to quickly note that during the third quarter, we completed a small divestment of our Nanjing Automotive Structures plant to a local Chinese investment holding company. The terms of the transaction will remain confidential. Please turn now to slide six. Before turning the call over to Jack, I wanted to give you a quick update on the current tariff environment and how we see the potential impact to Comstadium. As a reminder, we are mostly local for local in the regions where we operate. Today, our gross tariff exposure is mostly concentrated at our metal supply from Canada to our operations here in the US. We have made significant progress on pass-throughs and other actions to mitigate a large portion of our gross tariff exposure. At this stage, our direct tariff exposure remains manageable and is consistent with our prior expectations. Now, the indirect positive impacts from tariffs are continuing to ramp up, including improved scrap spreads in the US, higher demand for domestically produced aluminum products, and a more favorable pricing environment compared to expensive imports. Put it all together, we continue to believe that the current trade policies should be a net positive for us. Lastly, on tariffs, I want to reiterate that all known tariff impacts, both direct and indirect, and all of our mitigation efforts to offset the direct impacts are included in our guidance. With that, I will now hand the call over to Jack to further detail our financial performance. Jack?

Thank you, Jean-Marc. Congratulations, Ingrid, and thank you, everyone, for joining the call today. Before I get into the quarterly results, I wanted to point out that we had a revision of certain disclosures in previously issued financial statements. During the third quarter of this year, we identified and corrected certain immaterial errors affecting metal price lag and the resulting segment adjusted EBITDA for the A&T segment for certain prior periods in 2025 and 2024. This revision resulted in slightly higher segment adjusted EBITDAs as compared to prior disclosures in those periods. We included more details on this revision in both our earnings release and presentation today. Turning now to slide A, and let's focus on our A&T segment performance. Adjusted EBITDA of $90 million increased 67% compared to the third quarter last year. Volume was a tailwind of $6 million due to higher TID shipments partially offset by lower aerospace shipments. TID shipments were up 16% versus last year. First, as commercial transportation and general industrial markets became more stable in the quarter, and we started to see some increased demand from unshoring in the U.S. And secondly, we also benefited from higher shipments in Dalai following recovery from the flood last year. Aerospace shipments were down 9% in the quarter versus last year as commercial OEMs continued to work through excess inventory as a result of lingering supply chain challenges. Demand in space and military aircraft remained healthy. Price and mix was a tailwind of $11 million due to improved contractual and spot pricing in aerospace and TID as well as improved aerospace mix in the quarter. Costs were a tailwind of $16 million, primarily as a result of lower operating costs. FX and other was also a tailwind of $3 million in the quarter due to the weaker U.S. dollar. As a reminder, the third quarter last year included an $8 million unfavorable impact from the Dalai Flood. Now turn to slide nine and let's focus on our part segment performance. Adjusted EBITDA of $82 million increased 14% compared to third quarter last year. Volume was a tailwind of $11 million as higher shipments and packaging were partially offset by lower shipments in automotive and specialty road products. Packaging shipments increased 11% in the quarter versus last year. as demand remained healthy in both North America and Europe. In North America, we also benefited at Muscle Shoals from continued improvement of operational performance in the quarter. Automotive shipments decreased 13% in the quarter with weakness in both North America and Europe. Price and mix was a tailwind of $3 million, mainly as a result of improved pricing partially offset by unfavorable mix in the quarter. Costs were a headwind of $7 million as a result of higher operating costs, including the impact from tariffs. FX and other was a tailwind of $3 million in the quarter. Now, turn to slide 10, and let's focus on the AS&I segment. Adjusted EBITDA of $33 million increased 371% compared to the third quarter of last year. Volume was a $9 million tailwind as a result of higher shipments in industry-shooted products, partially offset by lower shipments in automotive. Industry shipments were up 40% in the quarter versus last year, as we had higher shipments in valet following recovery from the flood last year, while the industrial markets in Europe remained generally weak in the quarter. Automotive shipments were down 7% in the quarter, with weakness in both North America and Europe. Price and mix was an $18 million tailwind in the quarter, mainly due to net customer compensation for the underperformance of an automotive program as previously discussed, and better mix in the quarter. Costs were a headwind of $3 million, primarily due to the impact of tariffs. FX and other was the tailwind of $2 million in the quarter. As a reminder, the third quarter last year included a $10 million unfavorable impact from the Valley flood. It is not on the slide here, but our holdings and corporate expense was $9 million in the quarter. Holdings and corporate expense this quarter was up $7 million from last year, mainly due to higher accrued labor costs given our stronger performance this year, partially offset by lower headcounts. We now expect holdings and corporate expense to run at approximately $45 million in 2025, which is a slight increase compared to IRB previously. It is also not on the slide here, but I wanted to summarize the current cost environment we're facing. As you know, we operate a pass-through business model, so we're not materially exposed to changes in the market price of aluminum, our largest cost input. On other metal costs, we experienced a dramatic tightening of spot scrap spreads in North America in 2024. The tightness continued into the beginning of this year, though spreads have improved in the spot market as we move through the year. Given that a portion of our scrap purchases were negotiated previously, we did not benefit much from this dynamic during the period. However, we expect to benefit more in the fourth quarter this year. For energy, our 2025 costs are moderately more favorable compared to 2024, although energy prices remain above historical averages. Other inflationary pressures have eased to more normal levels. And as we said in previous quarters, given the weakness we're seeing in several of our markets, we have accelerated our Vision 25 cost improvement program. We have demonstrated strong cost performance in the past, and we're confident in our ability to maintain a right-sized cost structure for the current environment. Now let's turn to slide 11 and discuss our free cash flow. We generated $30 million of free cash flow in the third quarter, bringing our year-to-date total to $68 million. The year-over-year increase in the first nine months this year is a result of higher segment adjusted EBITDA, lower capital expenditures, and lower cash taxes, partially offset by more cash used for working capital and higher cash interest. Looking at 2025, we still expect to generate free cash flow in excess of $120 million for the full year, which is unchanged from our prior guidance and from our guidance to start the year, despite significantly higher working capital needs in the current environment. Working capital and other is now a larger use of cash compared to previous guidance. driven by higher activities as well as a significantly higher metal price environment in the US compared to the start of the year. It also includes the working capital rebuilding valet following the flood, so this was already embedding our guidance to start the year. We continue to expect CapEx cash interest and cash taxes to be around the same levels as per the previous guidance. As Jean-Marc mentioned previously, We continued our shared buyback activities in the quarter. During the quarter, we repurchased 1.7 million shares for $25 million, bringing our year-to-date total to 6.5 million shares for $75 million. We have approximately $146 million remaining on our existing shared repurchase program, and we still intend to use a large portion of the free cash flow generated this year for the program. Now let's turn to slide 12 and discuss our balance sheet and liquidity position. At the end of the third quarter, our net debt of $1.9 billion was up approximately $115 million compared to the end of 2024, with the largest driver being the translation impact from the weaker US dollar at the end of the quarter. As indicated previously, we expected leverage from last quarter to represent a and that leverage will trend down in the second half of this year. We have made good progress on that front, and our leverage decreased by almost half a turn to 3.1 times at the end of the third quarter, and we're on track to be below three times by the end of the year. We remain committed to bringing our leverage back down into our target leverage range of 1.5 to 2.5 times and maintaining this range over time. As you can see in our debt summary, We have no bond maturities until 2028. Our liquidity increased by over $100 million from the end of 2024. It remains very strong at $831 million as of the end of the third quarter. With that, I'll now hand the call over to Ingrid.

Thank you very much, Jack. And thank you, Sean Mark, for your kind words. I'm honored by the trust placed in me by the board, and I'm very excited to lead Constellium into its next chapter. Over the past years, we've developed and executed on a value creation strategy at Constellium through the focus on high value-added products, enhancing customer connectivity, optimizing margins and utilizations, focusing on cost and continuous improvement, and showing strong commitment to our stakeholders, all of which I'm committed to carry forward. Together with the support of our talented teams, we will continue to strengthen our partnerships with our customers deliver innovative, sustainable solutions, and create value for our shareholders. With that, let's turn to slide 14 and discuss our current end market outlook. The majority of our portfolio today is serving end markets benefiting from durable, sustainability-driven secular growth in which aluminum, a light and infinitely recyclable material, plays a critical role. Turning first to the aerospace market, Commercial aircraft backlogs are at record levels today and continue to grow. Major aerospace OEMs remain focused on increasing build rates for both narrow and wide-body aircraft, as evidenced by higher plane deliveries this year compared to last year. Also, supply chain challenges have continued to slow deliveries below what OEMs were expecting for several years in a row now. we are beginning to see signs that these challenges are easing. Demand has stabilized for the most part, and we remain confident that the long-term fundamentals driving aerospace demand remain intact, including growing passenger traffic and greater demand for new, more fuel-efficient aircraft. Demand remains stable in the business and regional jet market, and demand for space and military aircraft is strengthening. Looking across our entire aerospace business, we believe our product portfolio is unmatched in the industry, and we have industry-leading R&D capabilities for aluminum aerospace solutions. Turning now to packaging, demand remains healthy in both North America and Europe. As Jack mentioned earlier, we continue to benefit from improved performance at Muscle Shoals, which has set numerous operational records this year. The long-term outlook for packaging continues to be favorable, as evidenced by the growing consumer preference for the sustainable aluminum beverage can, capacity growth plans from the can makers in both regions, and the greenfield investments ongoing here in the U.S. Longer term, we continue to expect packaging markets to grow low to mid-single digits in both North America and Europe. Let's now turn to automotive. which is a bit of a different story in Europe versus North America. Automotive production of light vehicles in Europe remains well below pre-COVID levels. Demand in Europe remains weak, particularly in the luxury and premium vehicle and electric vehicle segments where we have greater exposure. Automotive production in Europe is also expected to feel the impact of the current Section 232 auto tariffs, given the number of vehicles the US imports from Europe. In North America, automotive production is also below pre-COVID levels, so demand has remained relatively stable. During the quarter, one of our competitors had a very unfortunate fire at one of their facilities in the US, which has created an interruption in the aluminum roll product supply chain in North America. The entire industry is mobilizing to ensure we limit the impacts on our customers. We currently expect a modest benefit from this, so more so in 2026 than this year. In the longer term, we believe electric and hybrid vehicles will continue to grow, but at a lower rate than previously expected. Secular trends such as light weighting and increased fuel efficiency will continue to drive the demand for aluminum products. As a result, we remain positive on this market over the longer term in both regions, despite the weakness we are seeing today. As you can see on the page, these three core end markets represent over 80% of our last 12 months' revenue. Turning lastly to other specialties, Industrial market conditions in North America and Europe became more stable in the second half of this year, and overall demand appears to have stabilized, although at low levels. We have experienced weakness across most specialty markets for three years now. As a reminder, these specialty markets are typically dependent upon the health of the industrial economies in each region, including drivers like the interest rate environment industrial production levels, and consumer spending patterns. We continue to work hard to adjust our cost structure to the current demand environment, which will put the businesses in an even better position when the industrial economies begin to recover. We do believe TID markets in North America can provide us with some opportunities today, given the current tariffs make imports less competitive compared to domestic production. and we are already seeing positive momentum on this front. To conclude on the end markets, we like the fundamentals in each of the markets we serve, and we strongly believe that the diversification of our end markets is an asset for the company in any environment. With that, I turn it back over to Jean-Marc.

Thank you, Ingrid. Turning lastly to slide 16, we detail our key messages and financial guidance. Our team delivered very strong results that were ahead of our expectations in the third quarter this year, including record third quarter adjusted EBITDA, and we returned $25 million to shareholders in a quarter with a repurchase of 1.7 million shares, which led us to a reduced leverage of 3.1 times. While tariffs are creating broader macro uncertainty and impacting end markets like automotive, we are proactively managing our business the current environment we remain focused on strong cost control free cash flow generation and commercial and capital discipline given our strong performance in the first nine months of this year and based on our current outlook including the current end market conditions that ingrid just described we are raising our guidance for 2025. we are now targeting adjusted EBITDA excluding the non-cash impact of metal price lag in the range of $670 million to $690 million, and free cash flow in excess of $120 million. Our guidance assumes an improvement in the second half this year compared to the first half, including our strong performance in the third quarter. The second half improvement includes a timing of certain tariff mitigations and customer compensations, as well as more favorable strap purchasing, the ramp-up in the valet, and favorable foreign exchange translation. Our guidance also assumes modest benefit from the recent aluminum supply chain interruptions in automotive and includes a revision in our ENT segment that Jack mentioned previously. Looking to the future, we also want to reiterate our long-term targets of adjusted EBITDA, excluding the non-cash impact of metal price lag of $900 million and free cash flow of $300 million in 2028. To conclude, while we continue to face challenging conditions in many of our markets today, some of these challenges are starting to ease compared to the start of this year. We're extremely well positioned for long-term success and remain focused on executing our strategy and shareholder value creation. Before we move to Q&A, I just want to say that it has been an extraordinary honor to lead Constellium and to work alongside such talented colleagues across the globe. Together, we have built a stronger company, and I am deeply proud of what we have accomplished. Ingrid is an exceptional leader with a vision and experience to guide Constellium forward, and I am confident she will take the company to even greater heights. With that, operator, we will now open the Q&A question, please.

Thank you, sir. As a reminder to ask a question, please press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. Once again, please press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. We are now going to proceed with our first question. And our first questions come from the line of Katia Janczyk from BMO Capital Markets. Please ask your question.

Hi. First, I want to congratulate both Ingrid and John Mark. And then I want to start on the scrap spread. I know you mentioned it was a small impact this quarter. It's going to be a bigger impact next quarter. Can you maybe provide a little bit more color on what that impact specifically was and will be? And then how we should think about looking into next year, given that I think some of your contracts are being negotiated now?

Good morning, Katia. Thank you for your kind words and encouragements and talking now about scrap spreads. So if you remember in the past, we were saying in any given quarter, you know, scrap spreads can move, you know, plus or minus five meters, right? That was the past. Then obviously in 24 and in 25, we had unprecedented changes of scrap spreads, you know, very much tightening in 24 and now widening in 25. And we said, the full impact in any given quarter can be 15 to 20 million. However, plus or minus, right? In this case, last year it was minus. This year it's a plus. However, as you know, we buy our scrap in staggered installments, and some of them are bought over spot markets. Some of them are quarterly. Some of them are yearly. So you've got some kind of a tale in terms of how these scrap spreads flow to our bottom line. In Q3, we were still buying scraps at spot prices, but also higher prices from earlier in the year. And Q4, that has significantly gone down. And we're seeing the scrap spreads also widening as a consequence of the unfortunate fire we saw at one of our competitors. Looking into next year, to your question about next year, If we remain in the same environment, we believe that there will be some further help from tailwind, from scrap spreads. We still maintain, you know, the 15 to 20 million a quarter, but it wouldn't be, we would be realizing all of it next year. And we've already realized some of it this year. Jack, you want to add anything?

Yes. I think the only thing I want to add, Katya, is that in Q3, we actually didn't see much benefits relative to last year, given the dynamic that Jean-Marc mentioned. And year-to-date, it's actually been a headwind for us.

Yeah, that's an important precision.

Okay, and just because I'm thinking, I think the $15 to $20 million was in 24, right, on a quarterly basis when... the scrap spreads really compressed. But when we look at the Midwest premium, where it is today, which is an all-time high, why, I'm just trying to understand why the spreads as we see them right now wouldn't contribute more than the 15 to 20 million.

And I think that's what, I mean, it's always part of what reference are you taking, right? Back in 24, we benefited from good scrap spreads that were uh bought in 23 and bad scrap spreads that were spot purchased right so that diminished the impact this year the same phenomenon happens the other way around and you're absolutely right that with enemy and uh well mostly the midwest rising that is widening even more the spreads in dollar terms and we'll see most of that we'll see some of that in q4 we'll see most of that next year if the current environment continues okay maybe just and maybe and maybe just under the 15 and 20 may be trending closer to the 20 than the 15 given the uh midwest price okay thank you for that and on the

I know there was a quick mention on the Novell Aspire would have a small benefit in 26. Can you quantify how big of a benefit it could potentially be?

It's enough that we talk about it, but not enough that we would put a number just yet. It will depend on a number of factors. As you know, following this uh this fire the whole industry rallied to support our common customers right but it was very hard to deliver in quantities in the just in the wake of the fire because products need to come a little bit from the us which is actually quite tapped out in terms of capacity so a lot of it needs to come from overseas that takes time you need qualification time even if it's accelerated so we think we're going to see some benefit in the 26th more in 26 than we're seeing in 25, and that should continue through the first half of 26. Precise number is too early to tell.

Okay, thank you. Thank you. We are now going to proceed with our next question. And the questions come from the line of Corrine Blanchard from Deutsche Bank. Please ask your question.

Hey, good morning. Thank you for taking my question and congratulations on the strong quarter. Jean-Marc, I'm sure you will be missed and welcome to Ingrid. And I'm sure people will be looking forward to hear more in the coming weeks. Maybe two questions. I mean, on the aerospace, I mean, you guys have had an amazing margin profile if you look back in the last four to six quarter, and I think we're only seeing an increase. Can you help us understand how do we model it out in 4Q and in 2026? And then maybe the second question would be, now you're about 200 million away from that 900 million of EBITDA by 2028. Can you just help me again bridge the gap over the next two years and how to think about it from a volume and pricing perspective? Thank you.

Good morning, Corinne, and I'll ask my colleagues, both Ingrid and Jack, to help me in answering your two questions. But I'll take a to crack at it first. So if you take the midpoint of the range, we are 220 million away from our 2028 target. So there's still quite a bit of wood to chop, but I think it's fair to say we are ahead of our plan, and we feel more confident now. We felt very confident, but we felt even more confident with our 2028 target. If you remember the bridge to 28, we had a number of actions, but a lot of them were under our control. We have some specific investments that are in the plan. They are actually, some of them are already operating, like our recycle center in Nafwizak. Others we are digging furiously. Others we are building furiously. And I'm thinking of the casting center in Mazur Shoals and the Airware, the aerospace-focused products in Iswa. And then we have some that are still on the drawing board, even though we are starting to build, to buy some long lead time items like the modernization and extension of our cast house in Ravenswood. And when I say these are under our controls, they are under our control from two standpoints. One is, you know, it's capex, right? So we build stuff and then we'll make product out of it. The other one is we don't need customers for these to be profitable. And certainly, As you know, most of these investments are geared towards recycling more products, and obviously in the current environment, these investments are going to be more exciting and more profitable. The airware investment is a little bit of a different story. Even though it is casting, you need customers for that, and I think what we're seeing with the aerospace ramp-up getting a little bit easier, and especially the development in space applications where we have a very strong position i think that bodes very well for this investment so overall it's a long answer to one part of the bridge right the capex side we feel very comfortable with our execution and capex and our ability to make money and maybe more money than what we had initially planned with those investments now there were all the other aspects to the bridge Some of it was our outlook on scrap spreads. The scrap spreads we have in the bridge to 2028 are narrower, just to be precise, than what is currently the case, much narrower. We'll see whether the current spreads continue, and if they are, that would be a tailwind to us. Now, on the headwind side, I think it's fair to say that we're disappointed with the automotive, the end market, right, the number, the SARS, the number of vehicles built in Europe, especially, but also a little bit in the US. So that would be a headwind. And we are seeing, you know, overall weak conditions in Europe. Now, by 2028, I think Europe will have gotten their act together and things will be better. But at the moment, if I look, you know, honesty at it. I think we're running behind on that front. So that's kind of the puts and take to the 2028 target. And obviously on the cost side, we've done very good progress with our cost management with Vision 25, more to come. I'm sure Ingrid will have a new plan for us, for the company in the future. So I think we're in pretty good shape on this. And then you had a question also on Aerospace, I think Ingrid knows aerospace inside out, so it's best she answers it. And obviously, you've got your own views on the 2028 long term, so please go ahead.

Thank you very much, Marc. And thank you, Corinne, for your nice words. I think with respect to aerospace, I think what makes us very different from some of our competitors is that we have a very, very wide product portfolio, including aluminum lithium technology. which is really a great material for a lot of niche markets where we play. So we are really focused on more value add per product that we sell, versus some of our competitors are maybe more dependent on volume ramp-ups of aerospace OEMs. And this is really driving our margin that is very, very different to some of our peers. And that's really a multi-year journey that we have developed with our R&D capabilities. So we have a lot of a lot of innovation material in the pipeline that is driving this differentiated margin, and we will continue to work on this. You also know military jets are good. Space has been actually quite good for us in terms of development, and overall the supply chain in aerospace seems to improve, particularly on the side of Airbus. With respect to 2028, I think Jean-Marc has already mentioned almost all of it, I would just maybe add one little point around commercial discipline and operational execution. I think you have seen now that PAP has much better financial performance driven in part by the muscle shows, better operational performance. So that remains a huge focus for us. We have worked very hard already on this, on the cost side and operational excellence. but we still have potential to improve, and this will also be part of our journey to the $900 million for 2028.

Thank you. Question, Corinne? Yeah, that's perfect. Thank you very much.

I will just add, I mean, Ingrid doesn't brag about it, but you guys have followed us for quite a while. You see our aerospace margin, which you hinted at being exceptional this quarter, Corinne. We say our you know, we're at more than 1,500, 1,600 year-to-date. When Ingrid took over the ANT segment, that's 2015, right, 10 years ago, we're running at less than $500 per ton. So the focus on value-added cannot be understated, overstated, sorry. We have really an excellent commercial and capital discipline to make sure we, an innovation drive, to make sure we get the best out of our assets so that we get the best returns for our shareholders.

Thank you. Thank you.

We are now going to proceed with our next question. And the questions come from the line of Bill Peterson from JP Morgan. Please ask the question.

Yeah, hi, good morning. Thanks for taking the questions. I also would like to congratulate Ingrid and the new appointment and also John Marks. It's been a pleasure working with you. One of the first ask about the bridge just just basically to understand the drivers for the 2025 guidance. If you can quantify or stack rank things like the one time customer payment, any benefit or if there is any benefit from the restatement you spoke to. maybe the potential tariff headwind, which may not be as much of a headwind, or where you've maybe found some success versus what you've been able to mitigate. And then, of course, scrap spreads, just to try to really define how much, I guess, of a benefit we should think about in the fourth quarter, or if there's anything else to raise as part of why you raised your guidance for this year.

Yeah, I agree. Good morning, Bill, and thank you. And I'll turn it to Jack for this difficult question.

Yes, I'll start. I'm John Martin. Rick, can you help me? So you mentioned a few elements, Bill. I think there's a reference point you have to be careful about, whether it's versus our prior expectation or kind of versus prior year, if you will, and the expectation there. But for customer compensation, for example, AS&I, that was already embedded in our prior guidance. Now we did realize the benefits this quarter, which is great. And specifically in terms of the amount, we're not going to be very kind of explicit, Bill. But if you were to refer to the bridge in the price and mix bucket, mix was a little bit more favorable, if you will. But then the vast majority of the price is driven by this customer compensation for the underperformance of automotive program. So that's kind of one piece. And then, you know, in terms of raising the guidance, obviously we had a very strong third quarter, which has lent us, give us more conviction into Q4 and to finish off the year. And Q3 was, came in better than what we had expected. On top of it, you alluded to this accounting adjustment and the magnitude there, we can be very explicit because it's been disclosed. For the first half of the year, it's in the neighborhood of, you know, 10, 12 million to be exact, $12 million of benefits, a good guy for ANT segment adjusted EBITDA. And then in terms of the scrap piece, I think John Mark already talked a lot about the dynamics there. We didn't see as much benefits as maybe you would have imagined based on where the spot markets are today, year to date. But we do expect to see more benefits in the fourth quarter given our kind of more open positions and some modest benefits. coming in from the unfortunate fire that happened at one of our competitors' plants. And obviously, we'll continue to focus on cost control and Vision 25. You know, on the flip side, and here I'm going to a little bit of kind of puts and takes, right? On the other side, when you look at the guidance for Q4 with relation to the view on the full year, we had very strong performance in A&T. we're able to benefit from favorable mix in aerospace due to a good volume of high-margin products, which could help compensate for weaker mix in the fourth quarter due to timing reasons. And then Europe continues to be quite weak across many different markets. And by the way, yes, we should see some modest benefit from the fire at our competitors' plans, but on the other hand, Also, it's creating a little bit of uncertainty with volatility with water patterns with the domestic OEMs. So you've got to take that into consideration.

And maybe more specifically to this point, Bill, we'll sell more rolled products, but not enough, obviously, to compensate for the shortfall that is created by this fire. You've heard of fraud. reduce their projections for build rates. And obviously, we also supply out of auto structures and industry products to, you know, different customers, including this one. So, if you don't build the cars, we don't sell the product. So, there's all kinds of puts and takes to our, to this guidance here. But fundamentally, we have momentum is, I think, the main message.

Yeah, no, a lot there. Appreciate the color. I wanted to ask a bit more on aerospace. It sounds incrementally more positive that the aerospace destocking is easing. I guess, how should we view the recovery? Is this still kind of maybe in your mind more of a 2027 story, or can this actually revert and turn positive in 2026? Try to get a sense for the trajectory of coming out of this destocking cycle.

Thanks for the question, Bill. I believe that... I mean, it's very hard to predict because, you know, there are new issues popping up as they ramp up. But clearly we see, particularly on the European side, that now it's only 2% of the supply chain that is holding back the rest of the supply chain. So it's a very small number today. And I'm sure with the different task forces that exist to overcome those industry challenges, this is going to ease throughout the year of 2026. Now, whether it's going to come towards the end of 26 or 27, I think still remains to be seen. But clearly there is an improvement that we feel across the supply chain. And you have heard also that Boeing is going to raise the build rates. They got approval from FAA for the 737 MAX, even though it's small. But it's the first pass to the trajectory of growth that they have been painting to the suppliers. So I feel that things are starting to come together, and in a few quarters from now, we should see a potentially much better picture than we see today.

Bill, I think it's fair to say that we are more optimistic about a faster path to recovery for the supply chain than we were three months ago.

Yes, definitely.

But it's difficult to put a date to it. We'll let you know as soon as we see it.

Appreciate that, Carl.

Thank you.

Thank you.

As a final reminder to ask a question, please press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. Once again, please press star 1 and 1 for any question. We are now going to proceed with our next question. And the questions come from the line of Tim Natanes from CSTM. Please ask your question.

Yeah. Hey, good morning. Thanks. And congrats to Ingrid. Best wishes to John Mark. I wanted to follow up with the same kind of question that Bill asked on aerospace, but on the broader European market. I know for a while now we've been waiting for that market to kind of bottom out broadly. Any things that we should watch for, just interest rates, any sentiment, anything that you can guide us to to get confidence in a turnaround in Europe and timing there?

Good morning, Tim. Thank you. You're talking the broad European market beyond aerospace, right? Correct.

Yes. Hello, Timnan. Thank you for the question. Yeah, I think it feels that the markets have been really weak for three years now. And we see some markets to really bottom out. It's very, very difficult to predict. As you know, we have strong markets in Europe, like packaging is very strong for can sheets, but also other packaging markets like flexible packaging. So these are running very, very well and very stable. Automotive, of course, is impacted by everything that's happening from the tariffs to the transition to electric vehicles. So I think there's a lot of questions right now on what is the best powertrain for the future and how is regulation going to change. So I think a lot of our automotive customers are really reviewing what their strategy medium to long term is really going to be. And then I think on industrial markets, we see mixed pictures. I mean, some of our operations are well-loaded. Some operations are really struggling. Rail business is good and continues to grow. So I would say it's a very, very diversified picture. But it's clear that the more commodity-based markets, like building and construction, where we don't really have a footprint, continue to be weak. So I would say there is positives and negatives.

But it feels, to Ingrid's point about three years and counting, Germany seems to go into a mode of, you know, stimulating a little bit more its economy. So that's a positive, should be a positive. And then you've got defense spending, which should ramp up as well, where we are well positioned. So I think the way to think of Europe is a tale of, you know, many different niches, right? There's one big market, Kanshi, which is great. Actually, it's undersupplied. We're sold out for many, many years. And then you've got plenty of different niches that are some good, some bad. And automotive, I think the jury is still out.

Okay, thank you. My other question is just trying to dig in a little bit on the impact of the rising aluminum and Midwest premium price in particular. So I know you exclude the non-cash impact of the metal price lag, but the higher EBITDA guidance and no change in free cash flow implies, you know, an increase in working capital that makes sense. Can you quantify any benefits of the price run up in the quarter for your higher EBITDA, or is that at all an impact? And if you could also address the way to think about the cash impact as well.

So Jack will help me, but on the EBITDA side, the only benefit from the rise in LME and Midwest is actually through scrap spreads, right, which follow, you know, supply-demand balance situation, and it's favorable to the buyers today. So, but that's an impact we have, right? Recycling becomes more profitable when the material is more expensive, about primary is more expensive, and recycling, you know, scrap becomes more profitable. But on the other aspects, you know, it's a pass-through business. So you may have a little bit of a timing-related impact, you know, one month to the next, but that's nothing really to write home about. And on the cash, you know, impact, obviously rising metal prices means we need to, you know, replenish our inventories constantly and we replenish them with more expensive metals. So that is a drag on our cash flow. That's a one-off drag on our cash flow this year.

Yeah, and I think, I mean, it's a type of question, Tim, that we can go into a lot more details afterwards, right? But maybe one way to think about it is to take a look at the changes in work in capital over the first nine months, and you see it's a large negative. Now, there's an element related to, you know, higher activities, right? We're doing more business. higher volume, but then there's a big piece there related to the metal price increase. But all in all, on a net basis, that's why, you know, we have maintained our free cash flow guidance of over $120 million, even though, you know, even though adjusted EBITDA, you know, excluding metal lag, the guidance there was raised.

And Tim, just to build on that, if you look at our initial guidance and now our guidance today, The EBITDA has increased, the cash flow hasn't. And the delta here can approximate the drag we get because of the LME Midwest going up, right? So that gives you an idea, you know, are we in the 60, 70, 80, 90 million? I mean, that's kind of a broad range of drag we have. So what it means is the cash flow generation If everything holds exactly the same next year, at 120, it's vastly understated.

Right. And just to finally clarify, so the guidance does reflect the fact that the aluminum price is even higher today's spot price than where it was averaged for the third quarter? Is that reflective in your guidance?

Absolutely.

Got it. Okay. Great. Thank you.

Thank you. Thank you so much.

Thank you. We have no further questions at this time, so I'll hand back to Jean-Marc Germain, CEO of Constellium, for closing remarks.

Thank you. Thank you, everybody. So, as you can see, we are ahead of our plan, we are building momentum, and our new CEO, Ingrid, is ideally suited to lead the company towards its 28 objectives and beyond. I leave as CEO at the end of the year, But I remain as a shareholder and an advisor to the board very excited about what's ahead, and I very much look forward to hearing about our prospects for 2026 from Jack and Ingrid when they update us on our progress in February of next year. Thank you, everybody, and have a good day. Bye-bye. Ingrid.

Thank you very much, Jean-Marc, for your kind words. Well, thanks, everybody, for your interest in Constellium. We are happy with the progress we made, as Jean-Marc just said, and we look forward to an exciting end of the year. We also look forward to updating you on our progress in February, and thank you very much in the meantime.

Bye-bye. This concludes today's conference call. Thank you all for participating. You may now disconnect your lines. Thank you, and have a great day.