Q1 2021 Arconic Corp (PITTSBURGH) Earnings Call
Good day and welcome to day iconic Corporation first quarter 2021 earnings conference call.
At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time.
If anyone should require assistance during the conference. Please press Star then zero on your Touchtone telephone line.
As a reminder, this conference call is being recorded I would now like to turn the conference over to your host Mr. Shane Board director of Investor Relations, Sir the floor is yours.
Thank you Laura good morning, and welcome to the <unk> Corporation first quarter 2021 results Conference call I'm joined today by Tim Myers, Chief Executive Officer, and Eric asked Ms and Executive Vice President and Chief Financial Officer After comments by Tim and Eric We will have a question and answer session.
For those of you who would like to follow along with the presentation. The slides are posted under the investors tab on our website.
I'd like to remind you that today's discussion will contain forward looking statements relating to future events and expectations. You can find factors that could cause the company's actual results to differ materially from the projections listed in today's presentation and earnings press release and our most recent SEC filings. In addition, we've included some <unk>.
Non-GAAP financial measures in our discussion reconciliations to the most directly comparable GAAP financial measures can be found in today's earnings press release and in the appendix in today's presentation with that I'd like to turn the call over to Tim. Thank.
Thank you Shane and good morning, everyone.
Again welcome to our first quarter 2021 earnings call, we had a strong start to the year and Eric and I are excited to update you. So let's start on slide four to discuss the highlights of our first quarter performance.
The markets, we serve are recovering and revenue increased meaningfully in several markets during the quarter.
Industrial revenue grew 18% year over year, 15% on an organic basis.
This was due to a combination of the effects of the U S trade case, and the ramping up of the investment we made in Tennessee.
Ground transportation revenue grew 25% or 17% organically year over year driven by recent platforms. We were awarded easily overcoming the semiconductor chip shortage in North American light vehicle production being down 4%.
Additionally, our packaging sales were up 23% or 16% organically at a Russia and China facilities.
Net income was $52 million and adjusted EBITDA in the quarter was $179 million, an increase of 19% or $28 million sequentially.
Benefiting from rebounding markets and the $100 million in structural cost outs, we implemented last year.
In the quarter, we secured agreements totaling $3 $5 billion as expected long term revenue with multiple customers across packaging and aerospace.
In packaging, we negotiated agreements with six customers, including Blue chip companies, such as Ball Corporation, a b inbev totaling $1 5 billion of expected revenue from 2022 through 2020 for filling the remainder of the 600 million pounds of incremental annual capacity that we've been discussing.
We easily could have booked more than two times. This volume at attractive prices, we had more incremental capacity available to sell.
And aerospace III customers awarded us new multiyear contracts totaling more than $2 billion in combined future sales and extending our position as a premier supplier.
At the end of the decade.
Looking forward, we expect our results to be supported by favorable sustainability trends such as light weighting of ground transportation and the shift to electric vehicles as well as the continued flight from plastic to aluminum packaging as consumers remain concerned about micro plastics entering our water and food sources.
We anticipate our results will continue to improve and cash generation will benefit from from a more than $230 million year over year decline in legacy obligation payments starting next year.
In the last year, we've reduced legacy growth pension and <unk> liabilities by $1 $8 billion.
And today, we are announcing the authorization of a $300 million share repurchase program.
We're very confident of our forward view of the business and we believe buying share shares that may create a great return opportunity for our shareholders.
Turning to slide five I'll provide more detail on how we performed across our end markets.
As you see in the bottom right of the slide in Q1, we grew our revenue sequentially across all of our market segments.
Ground transportation sales increased 21% from the prior quarter and 17% organically year over year, largely driven by continued growth in commercial transportation, which is benefiting from increasing heavy duty truck and trailer builds.
Automotive organic revenue grew.
Grew year over year, despite the challenge of the semiconductor chip shortage.
We also increased our market share with 11, new or greatly expanded platforms versus a year ago.
Sales in the industrial market increased 22% from the prior quarter and 15% organically year over year.
This improvement was driven by the continued ramp up of industrial products at our Tennessee facility as well as the influence that the U S trade actions against 16 countries had on demand for domestically produced common alloy sheet.
And the building and construction market, we increased 3% sequentially, but were down 6% organically year over year.
This market remains depressed as pandemic pressures are still affecting nonresidential construction builds in North America. We did however, see an improvement in bidding activity in our North American colonies architectural systems business as the quarter progressed.
Sales in the packaging market increased 8% sequentially from 16% organically year over year, largely as a result of growing demand in our China and Russia packaging facilities.
Finally, aerospace increased 5% sequentially, but was down 55% year on year.
On an organic basis, the first quarter of 2020 was an extremely strong.
Aerospace quarter for us and we expect the aerospace market to enter a steady gradual recovery moving forward.
Now I'll turn it over to Eric to review the financials.
Thanks, Tim I will start on slide six with highlights.
Revenue in the first quarter was $1 7 billion up 15% from the prior quarter and down just 1% organically year over year net.
Net income for the quarter was 52 million or <unk> 46, a share compared with 46 million or <unk> 42 cents a share in the first quarter of 2020.
Adjusted EBITDA was 179 million, which was an increase of $28 million or 19% from the prior quarter.
Free cash flow for the quarter was a use of $322 million, primarily due to the acceleration of $200 million of U S. Pension contributions to January of this year and increasing working capital from revenue growth and metal price increases store inventories.
As previously announced we issued an AD on a $300 million to our senior secured notes due in 2028 to fund the $250 million pension contribution associated with the annuity <unk> transaction that was completed last week. We ended the quarter with a cash balance of $763 million and total liquidity of approximately $1 6 billion.
Before I move on to discussing our performance in more detail I want to highlight that our Q1 adjusted EBITDA of $179 million is roughly 90% of our pre pandemic Q1, 2020, adjusted EBITDA, even though aerospace revenue was down 55% organically year over year.
Turning to slide seven.
Revenue increased to $64 million year over year, primarily as a result of metal price offset by volume mix and divestiture impacts John.
Adjusted EBITDA for the quarter was $179 million down 25 million year over year, largely because of volume and mix, resulting from lower aerospace revenues, which was partially offset by strength in ground transportation industrial and packaging markets.
We achieved net savings of $23 million, primarily related to a $100 million structural cash conservation and issue from last year and other EBITDA impacts in the quarter was a negative $10 million, primarily due to allocation of cost differences from carve out accounting from the first quarter of 2020.
Turning to slide eight I will provide more detail on our segment performance.
Starting with our rolled product segment revenue was approximately $1 4 billion up 6% organically year over year, primarily as a result from strength in ground transportation industrial and packaging markets. Adjusted EBITDA was $165 million flat with last year as <unk>.
<unk> benefits and cost actions fully offset the impact from lower volume.
And mix driven by declines in aerospace.
Revenue in our building and construction systems in the first quarter was $236 million down $20 million year over year because of pandemic related disruptions continue to affect construction projects and adjusted EBITDA was $28 million only down $2 million year over year as cost actions, nearly offset volume mix and price declines in the quarter.
Revenue in our extrusion segment was $75 million down 42% organically and adjusted EBITDA was a loss of $4 million versus positive 8 million last year as the aerospace market declines continues to affect this segment's performance the decline in aerospace revenue makes up nearly all of the year over year decline in the entire revenue decline.
From a prior quarter.
As we mentioned in the past we continue to implement structural actions in this segment and improving the financial performance of the extrusion segment remains a priority.
Moving to slide nine I'd like to review our revenue outlook in each end market for 2021, we.
We continue to expect ground transportation organic revenue to increase 25% to 35% year over year, we remain bullish on the ground transportation market as indicators for light vehicles are strong and north American heavy duty truck and trailer production is forecast to increase by approximately 40%. This year this growth combined with increasing content.
We've secured on the 11, new or greatly expanded automotive platforms are expected to more than offset the headwinds created by the semiconductor chip shortage.
We have increased our outlook for industrial organic revenue growth to 20% to 25% compared with our prior outlook with 15% to 20% growth <unk>.
T factors for this increase are the favorable conclusion of the U S. Trade case reached at the end of March and the continued positive trends for sales and pricing.
This market strength enables us to capitalize on the investments we've made at our Tennessee facility, which creates additional flexibility to pivot production to the industrial market to help offset the impact of the semiconductor shortage in automotive.
We expect the building and construction market to be flat in 2021, as the North American nonresidential construction market recovers.
In packaging revenue continues to be strong, especially in Russia, and China, and we now look to anticipate year over year growth of 10% to 15% up from our primary work with flat to modest growth. We expect the revenues to begin benefiting from access to new markets that previously were unavailable because of the noncompete that expired at the end of last year.
Our aerospace revenue outlook is unchanged at a decline of 25% to 30% year over year due to slower OEM production growth and ongoing strong destocking across the aerospace supply chain we.
We believe we experienced our trough quarter in the aerospace market in Q4 of 2020, and we look forward to a long steady recovery bolstered by new and extended contracts now I will turn it back over to Tim discussed our path forward.
Thanks, Eric.
Now I'd like to turn our attention to the future.
The favorable mix the favorable macro trends, we see in the markets. We serve the incremental capacity, we've unlocked new contracts, we've secured and the strong momentum we are delivering on our productivity initiatives position the company very well for substantial and sustainable growth.
In terms of new agreements from the packaging market as you see on slide 11, we continue to requalify with major customers in North America. Following the exploration of our noncompete.
Today, we announced that we've negotiated agreements with six can makers totaling approximately $1 $5 billion in expected revenue from 2020 through 2024.
These agreements should enable us to fill the remainder of the 600 million pounds of capacity in our North American production network during 2022.
The agreed upon pricing combined with strength in the industrial and automotive markets.
Should allow us to deliver at the higher end of our previous EBIT growth guidance for the incremental 600 million pounds of capacity.
As I mentioned earlier.
We received expressed interest from more than double actually nearly triple our available capacity.
Yes.
In the aerospace market on slide 12, we signed contracts with Boeing Spirit Aero systems, and Gulfstream that combine to make up roughly $2 billion in expected future revenue over the terms of the contracts.
<unk> as a whole the new contracts and prove our aerospace pricing net share volume and duration.
Through these contracts, we have maintained our position as a premier supplier in aluminum components across the entire airframe, including fuselage sheet and wing skins throughout the expected recovery and beyond.
As you can see on the slide we believe that our revenue reached a trough in the fourth quarter of last year, and we're looking forward to a steady sustained recovery.
Longer term, we expect aerospace to recover to pre pandemic levels in 2023 or 2024.
Another reason, we have confidence in our long term growth is that many of our products contribute to environmental sustainability as shown on slide 13.
As you know consumer demand for environmentally responsible products and components continues to grow.
Automotive light weighting, particularly in large Suvs and pickups continues to drive aluminum penetration.
Overall aluminum was 11% of vehicle weight in 2018 and is expected to grow to 15% by 2030, a 36% increase with the content. We delivered on the 11, new or greatly expanded automotive programs in the first quarter. We're now on a total of 68 nameplates, serving 20 different customers.
We also stand to benefit from the growth of electric vehicles, which were approximately 25% to 35% more aluminum intensive than internal combustion engine vehicles.
<unk> electric vehicle sales are expected to grow at a 29% compound annual growth rate from 2020 to 2030.
At which point electric vehicles are expected to represent 32% of the market.
We currently supply products on 11, all electric or hybrid nameplates with applications ranging from body panel body structure raising sheet for heat exchangers, and cooling systems and battery cases and are actively developing our range of last mile delivery fleet electric vehicle opportunities with multiple customers.
Can sheet demand is expected to grow at a 5% compound annual growth rate from 2021 to at least 2025 due to continued consumer preference shifting away from classics.
Aluminum packaging with much easier recycled plastic and far less damaging to the environment.
Lastly, our building and construction products provide architectural designs and solutions to meet ever increasing energy efficiency standards and standup to severe weather, which has become more pronounced due to climate change.
On slide 14, I'd like to go over the steps, we've been taking to advance our environmental social and governance goals.
First and foremost we continue to prioritize the safety of our employees.
Our total recordable incident rate is less than one compared to an industry average of three six.
And we are focused on continuously improving our safety practices and performance.
Clearly leads our industry.
Scrap utilization is a critical metric for all of our operations and over the last several years, we've gone from being a relatively large net seller to relatively large net buyer of scrap.
Last year, we achieved the scrap utilization rate of approximately 58% up 280 basis points since 2017.
It's not only good for the environment, but it's good for our profitability too as recycling scrap is less expensive than buying prime.
We're committed to continuing to increase scrap utilization in the future expansion of our package packaging production will only further improve our recycling rates.
In the middle of last year, we launched an initiative to support inclusion diversity and social John.
Yes.
We also expanded the mission of the iconic foundation to increase our focus on this very important topic. We beds. This initiative grow together and over the last five months of 2020, our employees recorded more than 2200 actions a charitable contribution voluntary personal development.
Combined with the kind of foundation, we contributed more than $460000 to organizations supporting inclusion diversity and social Justice and that's just the start for us.
We're also recent signatory to the United Nations Global contest contact and we're targeting the UN 2030 sustainable development goals.
ESG initiatives are a key priority for us and we're looking forward to making more progress on them. This year, our first full year as a standalone company.
We'll be sharing more on our efforts and our progress in coming months.
Turning to slide 15, I'd like to update you on where we stand against our $300 million EBIT growth program for synergies last August.
The program represents a 50% uplift over last year's profitability and we expect additional EBIT growth on top of this as the aerospace and building construction markets continue recovering.
To pre pandemic levels.
As I mentioned earlier with industrial demand strength increased automotive volume and the recently secured $1 $5 billion of can sheet agreements, we will fill the 600 million pounds of incremental North American system capacity, we identified on a run rate basis from the second half of 2022.
We have this capacity will produce can sheet, while the remaining half will be filled with automotive and industrial products. We expect to achieve the high end of the $100 million to $120 million EBIT growth guidance range for this opportunity.
We expect to have the $100 million of structural cost outs, which we initiated in the second quarter of 2020 to be fully achieved by the end of this quarter.
We recognized $60 million of the reductions in last year's exit run rate and delivered another $22 million in the first quarter of this year.
Lastly, our productivity initiatives remain on track to save an additional $70 million to $80 million on a run rate basis by the end of this year as well.
These represent a range of efforts from higher casting throughput increased scrap utilization and increased asset utilization approximately $40 million of the $70 million to $80 million. Originally identified was recognized and realized in 2020.
Assuming our markets continue to be strong execution on these three initiatives should enable us to deliver $1 billion in annual adjusted EBITDA when the aerospace market returns to pre pandemic 2019 levels.
Turning to slide 16.
We continue to make great progress in reducing our liabilities last week, we announced the conclusion of a $1 billion of annuities Asian transaction that brings the total reduction in our gross pension and <unk> liabilities to approximately $1 8 billion or 35% since separation.
Our net after tax pension and <unk> liability has now decreased by 700 million or 47% since the separation.
Additionally, the majority of our environmental payments are related to one discrete project in Massena, New York, which will near completion at year end lowering our expected environmental remediation payments by over $60 million next year.
When we combine the reductions in <unk>.
OPEC obligations with recently enacted pension funding relief legislation and the significant step down in an environmental spending combined to more than $234 million less cash being required next year and almost $300 million less per annum than.
And then when the company started just a year ago.
When we combine this with the increased earnings power that I described on the previous chart. It's exciting to think about all the cash that we're going to be generating and what we'll be able to do with it to continue growing the business and identifying other means to create returns for our shareholders.
Yes.
Throughout this presentation, we've outlined a variety of ways that the company has executed on its growth opportunities and continues to do so.
To boil it down to a couple of key points presented on slide 17.
We continue to benefit from the hard choices and actions, we took in 2020 to reduce costs and pay down our liabilities as you've seen these actions are combining to significantly improve future profitability and free cash flow conversion.
Although the automotive industry is experiencing issues with semiconductor chip shortages demand is strong across ground transportation and our share gains in automotive are supporting growth.
Additionally, our strategy to invest in more industrial capacity in Tennessee is greatly enhanced our flexibility.
The first quarter was a proof case for the tremendous agility and Optionality. We now have to quickly pivot our capacity to whichever market is most attractive we've outlined in detail the drivers behind the industrial and packaging growth that is already happening. Both of these markets are experiencing secular tailwind that should provide profitable growth from foreseeable future.
Finally, we are in the process of studying additional affordable opportunities to create incremental capacity without large scale capital expenditures.
I'll close with our updated 2021 outlook, we're increasing our full year 2021 revenue guidance to be in the range of seven 1% to $7 4 billion.
From our prior guidance of $6 six to $6 9 billion, reflecting the effects of higher aluminum prices combined with the growth in our packaging and industrial sales were.
We're also increasing our adjusted EBITDA guidance for the year to be in the range of $710 million to $750 million compared with prior guidance of 675% to $725 million, primarily driven by better than expected volume and pricing in the packaging and industrial markets.
This guidance includes the challenges that we see in the automotive industry due to the chip shortage that will continue to be a headwind, particularly in the second quarter.
We expect this will begin to modestly recover in the second half of 2021 is consumer demand remains strong for the automotive Oems.
Adjusted free cash flow for the full year of 2021, excluding the $250 million contribution to U S pension plans in connection with April's 1 billion renewed innovation.
As well as approximately $350 million of additional funding of legacy pension <unk> and environmental liabilities is expected to be in the range of $300 million to $400 million.
At this time, we'd like to open up the call for questions and I'll turn it over to Laura to help facilitate those.
Thank you Frank.
Ladies and gentlemen.
From a best Florin. Please press the Star then the number one touchstone telephone line.
Thats Star then the number one our net Touchstone telephone line with your question has alarms are your roster remove yourself from the Q growth profit.
Charles.
Your first question will come from the line of Curt Woodworth from Credit Suisse. Your line is now live.
Yeah.
Great. Thanks, Good morning, Tim and Eric Congrats on a great start to the year.
I was wondering if you could provide a little bit more color with respect for the near term outlook.
Lean towards discussing some pretty material production from <unk>.
<unk>.
It seems like thus far order entry and Arrow has been relatively stagnant. So I'm just curious sequentially is it moving to the second quarter.
You see things shaping up.
Sure Kurt and thank you we were pleased with the quarter.
The team.
<unk> did a very good job of.
Bringing down the opportunities in front of us.
The semi conductor issue.
On its surface.
Probably.
We had an impact of maybe $10 million of EBITDA in the quarter.
But we were able to pivot quite a bit of that capacity.
Into the industrial segment, which is relatively strong.
We probably forecast the impact to be greater in terms of automotive this quarter.
But also we had a little more visibility.
So we've already pivoted quite a bit of our supply chain over and gotten the materials we need.
To make more industrial products this quarter and so.
My hope is that that our commercial team is able to sell through the semiconductor chip shortage and.
We're going to continue on.
Okay.
With respect to some of the new I guess contract extensions or agreements in Aero and then also on packaging can you give us any sense for the profitability of the packaging deals you're able to secure and then on Aero you talked about improving mix volume share can you give us any sense of what that could.
Fly for mid cycle profitability increase in that business.
Sure. So I mean first of all 600 million pounds upper end of the.
Upper end of the range on the $100 million to $120 million I think you can.
Back into what the profitability from metric ton as for the.
The combined opportunity there.
Hum.
With the level of interest that we had from the can makers.
We were able to I think.
Good day.
You do a fair job of capturing value in terms of.
Terms and pricing and also.
Picking lanes that were good for us and.
We're also getting the specifications that we were excited about so.
Pretty pleased with how that came out.
In regards to aerospace.
The contracts.
Gary in terms of their longevity across three customers.
I can't really get into specifics there, but what I can say is.
If we see 2019 build rates, we would see an uplift in price and volume.
Collectively across those three customers.
And mix.
Okay, and then just last one on pension.
Can you quantify what the impact of the pension reform in the stimulus Bill was in terms of.
<unk> got a doubling and I think they raised interest rates for.
And then with the pre funding I know you have a slide for 'twenty two in the deck.
How would that would those numbers look similar for 'twenty three in terms of your cash out.
So answer your question on the impacts of the legislation reform it essentially smooth.
It doubled the rate of smoothing so to some extent.
Our $50 million that you have on slide 16, it had a.
A dramatic reduction of that because it spreads it over double the years.
As far as the impacts on 'twenty, three and beyond Youre, starting off a base of 50, so volatility of interest rates and mortality are starting with a much smaller base so growth the way to look at it.
It will have impact, but on a very very small base. So you should expect 23 and beyond to be in a similar level.
Got it okay. Thanks, very much I appreciate it.
Thank you Sir your next question will come from the line of John.
Sullivan from the bank my pencil.
Your line is very helpful.
Hey, good morning.
Hey, Josh good morning, Josh.
Yes, I mean, it's really great you guys are feeling the announced capacity so quickly.
I think if I heard you right you said you had triple the request.
Maybe you had available.
What are your thoughts on industry capacity historically, the rolling market face some overcapacity cycles, just what are your thoughts on balancing growth versus capacity discipline.
Obviously, a pretty attractive cash profile building up here just just curious on your thoughts about that.
Well I think that we're going to continue to.
Focus on the types of opportunities that we have in the past that.
Pricing levels that you have in this industry in terms of thinking about greenfield.
Capacity.
<unk>.
Don't support that and so what we need to do is continue looking for affordable opportunities to invest in our footprint.
So that we can continue treatment capacity and the assets that we have and.
The market is there certainly and we're going to maintain our discipline in terms of.
How do we capitalize on those opportunities.
Got it.
And then just on the extrusion.
What do you think the cadence from appropriate looks like is there anything in the infrastructure builds or environmental regulation that you see.
Suggesting an uptick in any particular products.
And I think that fundamentally.
That business to recover.
Need to see the aerospace volumes come back.
Already qualified with those customers on those products, we have some pretty unique assets to service debt market.
Particularly in one of our facilities.
So we are continuing we've taken a tremendous amount of cost out of that business already.
With.
The almost 55% of its pre pandemic sales in aerospace.
And the entire the entire decline in our revenue.
In that.
Business was all aerospace sequentially.
Approximately 90% of the decline we saw year on year. So.
Debt.
That's kind of our focus is.
Continuing to get it to a lean and mean and when net debt volumes comes back we would expect to see the margin uplift.
Got.
And then just one last one on the North America packaging qualifications can you talk about how many you have in process or how maybe doesn't move forward from Q1.
Q2.
So we.
We started shipping our first trial coils last week in fact.
I think we've got.
Net.
I missed this but I think we've got 13 trials scheduled this quarter.
So you know where.
We're making really good progress in getting ready for the new contracts.
Thank you for taking my questions.
Thank you.
Thank you Sir.
Next question will come from the line of total are Brian <unk> from Deutsche Bank. Your line is from <unk>.
Go ahead.
Hey, good morning, guys.
Morning, John on the first question.
Switching question, whereas there.
Most of my questions have already been answer Paul.
I, just thought was cop or more why is that.
Yes.
Thank you Mike what do you think for the right from day, Yes, I think John will walk and Kathy that assumption.
<unk>.
How much have you taken into account into the free cash flow guidance.
So we've I think we've seen quite a bit of a ramp up.
So I think it should level out.
Well, if you look at our guidance.
Negative 300 million.
Free cash flow plus in the first quarter.
To essentially get back to zero, you know, we're expecting to generate over $300 million as we go through the rest of the year.
Yes, I guess, the one thing that we have to keep our eye on is the <unk> has continued to rise unabated and that does have an impact on our cash as we ramp up inventory and AAR, but.
I would just I would describe it as steady state moving into the second half of the year.
So well I can give you that steady fall.
Moving on that front, that's what she said yes.
Yes, and then again, we'll probably obviously will have some ramp up but as we turn the corner into next year as we get into the packaging contracts.
Yes that makes sense.
And then the other question is Malegaon Charles day.
What do you expect for the SG&A and corporate expenses from borrow from the year.
It should be relatively flat I mean, the restructuring efforts that we announced last year have been implemented.
So you should see a relatively flat.
Okay, and if I may just just one line and then just to try to understand I mean are we found the packaging contract.
As everyone knows is and John is probably the good news is that you have over 50%.
The incremental volume from Tennessee already committed.
I don't think anyone on the question but.
<unk> say to allocate small volume Paul will take from that.
<unk>, Oh geez, given it was a.
A very successful process for you how would you see content you focus on IV.
Our packaging and I've seen just triad.
So the.
The makeup is 50% packaging and 50% industrial and automotive.
We are already recognizing a significant amount of the other 300 million pounds.
That was a big part of the growth that debt.
Debt, we saw in the first quarter.
You look at our industrial sales and annualize them for the first quarter, they they would equate to $1 $4 billion.
If you looked at the last four years, we've averaged about $1 billion of industrial sales. So now inside of that you had the metal uplift, but we had 25%.
Kind of growth.
And a lot of that is the ramp up of Tennessee, and then some of the automotive sales that we didn't experience in the first quarter. I mean, we were planning on so we booked volume.
In automotive and industrial to absorb that other 300 million pounds, and we're well on our weighted towards ramping it up.
Okay. Okay.
From a nice.
Another question is.
And I know it has been touched on at the beginning of the call, but love to understand.
The impact of the semiconductors, so you're saying because maybe about $10 million EBITDA impactful. One Q. You said you think it could be great day or into Q.
You have taken that into account.
Further our revised guidance.
What kind of impact.
We've taken into account into the guidance, Yes, let me, let me dimension that a little further to I would say the if we wouldn't have been able to backfill in the in the first quarter. It would've been $10 million I would say that we.
Probably cut that in half as.
As we pivoted over and backfill some of that missing volume with industrial.
I think that the overall impact of automotive stand alone will be a little bit greater this quarter, maybe $15 million.
But I think that we're going to be able to keep the overall impact.
Around that $5 million this quarter and that debt is what we assume in our guidance and then.
We're planning on seeing a modest recovery.
Second half versus first half in the semiconductors, but not fully recovered until next year.
Does that tie into our guidance.
Okay great.
For me thank you.
Thank you.
Thank you Lauren.
Your next question will come from the line of Michael Glick from Jpmorgan. Your line is a line go ahead. Please.
Hey, good morning, John.
Just a quick one from me on capital allocation, how do you think about using your free cash flow.
For buybacks versus dividends and then do you view the buyback is more opportunistic or systematic in nature.
Yeah.
Well certainly we're looking at our projections for the future.
And where our share price is and we thought yeah, theres a great opportunity for our shareholders.
Yes.
Clearly, we also think about.
Dividend policy moving forward at this point, we thought the <unk>.
Share repurchase.
Represented a good opportunity for our shareholder.
If the stock runs away from us and we.
We will keep keep our powder dry.
Think through what we want to do with capital allocation as we move through the year and into next.
Okay got it thank you.
Thank you Sir.
Our next question will come from the line of Karl Blunden from Goldman Sachs. Your line is rollout go ahead Paul.
Good morning, Congrats on the strong results and the outlook.
I think youre already answered part of my capital allocation question, but I was also wondering if there is scope for M&A in your plans and how you think about debt at this point given the flexibility you have created on your balance sheet right now.
Well I would say that.
The board is wide open for us we should start.
Generating quite a bit of cash flow.
From this quarter forward.
So we will certainly consider opportunities in M&A.
<unk> represent a good return for our shareholders.
And we will continue to compare those with the options of investing in our own footprint looking at the initiation of a dividend.
Whether or not it makes sense to repurchase shares.
Let me just.
Following up on some of the end markets the aerospace.
Segment has been weaker and that's across the industry. It's not specific to yourself. When you think about your long term investment plant net area have those changed at all based on what you've seen over the last year or so.
Core investment there is when you split off from the broader enterprise.
Prior to the separation our rolling business is really at the end of a pretty significant investment cycle.
The last big investment, we made was that $100 million investment that we made in Tennessee.
Essentially has ramped up.
Just before that we made a couple of sizable investments to support the aerospace market one of them was a very thick plate stretcher.
Which by the way was one of the assets that allowed us to pick up some new share in the contracts that I just mentioned the unique capabilities of the stretcher.
And we also expanded our heat treat capacity so we're fully ready.
To take on the recovery in aerospace with zero capital investment required.
That's helpful and packaging.
You've spoken about packaging and the ramp in revenues in activity starting next year I was just.
Curious how that works mechanically as you ramp that up is there a period of.
Lower utilization in.
Some fixed costs that you've struggled to spread.
Spread at that point in time, so basically looking for some kind of.
What's the EBITDA headwind as you go from not.
Fully ramp to getting that business fully up and running well first of all day.
Our cost structure is 85% variable.
We've got a cold mill Thats sitting there waiting for a crew.
So we start ramping up.
The crew is we're bringing the volume in.
I wouldn't see a lot of friction there.
We will have a ramp up quarter at the beginning of 2021.
And if you think about debt $1 5 billion in contracts over the three years kind of think 25% next year, 35%.
2022, and 40% in 2023% and 40% in 2024.
It will be it will be flexing, our labor up in <unk>.
We've already got the management team on the Florida down in Tennessee, So there won't be a lot of the additional fixed costs going into the plant.
That's helpful. Thanks very much.
Thank you Paul.
And I am showing no further questions. If that's true I would now like just wanted to come from Boston mistaken line minus final closing remarks.
Okay, well in closing I'd like to summarize first of all thank you again for joining US today. We appreciate your interest.
In closing, we delivered a strong financial start to the year.
We've increased our outlook for 2021 with adjusted EBITDA up 18% year over year at the center of the range, we secured $3 $5 billion in new business.
We announced $300 million share repurchase program, we reduced $1 billion and legacy liabilities opening the door to strong free cash flow conversion and.
And we have our eyes on a $1 billion in adjusted EBITDA net.
In the not too distant future.
We're excited to tell you about our prospects and I look forward to updating you all again next quarter. Thank you.
Thank you Sir thank you so much pavan <unk> from Goldman Sachs.
Good day, everyone for participating. This concludes today's conference you may now disconnect.
Let me Paul.
John.
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John.
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David.
John.
Yes.
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Paul.
Paul.
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John.
John.
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Our revenue.
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Paul.
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John.
John.
John.
Okay.
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Okay.
Moving forward.
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John.
Sure.
John.