Second Quarter 2020:

l  Net Sales $276 Million; Value Added Revenue $175 Million, Down 17% Year-over-Year

l  Net Loss $7 Million; Net Loss per Diluted Share $0.41, Includes Pre-tax Restructuring Charges of $12 Million, or $0.57 per Diluted Share After-tax

l  Adjusted Net Income $6 Million; Adjusted Earnings per Diluted Share $0.36

l  Adjusted EBITDA $34 Million; Adjusted EBITDA Margin 19.7%

l  Total Liquidity ~$1.0 Billion

First Half 2020:

l  Net Sales $645 Million; Value Added Revenue $391 Million, Down 9% Year-over-Year

l  Net Income $23 Million; Net Income per Diluted Share $1.41

l  Adjusted Net Income $36 Million; Adjusted Earnings per Diluted Share $2.27

l  Adjusted EBITDA $94 Million; Adjusted EBITDA Margin 24.0%

Second Quarter 2020 Highlights

“Second quarter shipments and value added revenue reflect the impact of lower demand across our end markets due to the effects of COVID-19,” said Keith A. Harvey, President and Chief Operating Officer. “As we experienced rapid changes in business conditions, we executed on our business model and aggressively flexed costs and operating levels at our facilities in response to lower demand. Although there is often a lag with certain cost and related benefits, our highly variable cost structure allows us to react quickly, and flex costs through the cycles. Despite the decline in end market demand, pricing has held steady,” said Mr. Harvey.

Demand for the Company’s large commercial aerospace applications declined as Boeing and Airbus temporarily halted production and curtailed deliveries, while demand for defense applications continued to remain strong as the F-35 and other legacy fighter programs remained robust. The Company’s general engineering business showed good resiliency as demand for high performance KaiserSelect® products, along with solid support from the Company’s long-term customers, helped create additional pull for its products during the quarter. Demand for automotive applications significantly eroded during the second quarter as virtually all automotive assembly plants in North America temporarily shut down due to COVID-19 concerns. Although most automotive manufacturers resumed operations in June, restarts were slow and uneven throughout the supply chain as facilities continued to deal with COVID-19 outbreaks.

As discussed during the Company’s first quarter earnings call, Kaiser’s longstanding business cycle strategy has consistently focused on being well prepared for unexpected economic adversity. In April, the Company issued $350 million aggregate principal amount of 6.50% unsecured senior notes due 2025 to further strengthen its liquidity and financial flexibility. With approximately $1.0 billion of total liquidity, the Company has a strong safety net to navigate the current economic environment, proactively respond in an economic recovery, and capitalize on attractive investment opportunities. 

Outlook

As the Company noted on the first quarter earnings call, value added revenue for large commercial aerospace and defense applications is anticipated to be down approximately 15% to 20% from record full year 2019 results. The two businesses combined represent approximately 50% of the Company’s total value added revenue.

“For the second half 2020, we anticipate total value added revenue will be down approximately 10% to 15% from the second quarter pace, with EBITDA margin in the mid-teens,” said Mr. Harvey. “Compared to the second quarter pace, we expect value added revenue for aerospace and high strength applications will be weak in the second half as large commercial aerospace shipments were heavily weighted to the first half of 2020. We expect normal seasonal demand weakness for our general engineering applications and anticipate a strong rebound for our automotive applications to value added revenue similar to the first quarter pace as customers return to more normal operations, and new program launches resume. Our second half outlook for value added revenue and EBITDA margin anticipates a weaker third quarter than fourth quarter due to timing of aerospace shipments and approximately $4 million of higher major maintenance costs related to timing of planned projects.

“As previously noted during our first quarter earnings call, in April we began limiting capital spending to critical sustaining projects only; however, with ample liquidity and more visibility for our end markets, we will proactively initiate capital spending on a number of organic investment opportunities to further support our automotive growth and enhance efficiencies throughout our operations. We anticipate that total capital spending for the full year 2020 will be approximately $50 to $60 million,” concluded Mr. Harvey.

Table 1: First Quarter 2020 Consolidated Results

(In millions of dollars, except shipments, realized price and per share amounts)

Source: Kaiser Aluminum