Q1 2022 Constellium SE Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the <unk> first quarter 2022 results conference call.
At this time all participants are in a listen only mode.
After the speaker presentation, there will be a question and answer session to ask a question. During this session you will need to press star one on your telephone.
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It is now my pleasure to introduce director of Investor Relations, Jason Hershiser.
Thank you operator, I would like to welcome everyone to our first quarter 2022 earnings call on the call today, we have our Chief Executive Officer, John Marc Germain and our Chief Financial Officer, Peter Matt.
After the presentation, we will have a Q&A session a.
A copy of the slide presentation for today's call is available on our website at <unk> Dot 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 Securities 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 20-F.
All information in 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 <unk> RF disclosures.
I would now like to hand, the call over to John Mark.
Thank you, Jason and good morning, good afternoon, everyone and thank you for your interest in <unk>.
Turn to slide five and discuss the highlights from our first quarter results I would like to start with safety. Our number one priority we delivered best in class safety performance in the first quarter with a recordable case rate of $1 6 million.
One sorry, one six per million hours worked in the first quarter. We had several sites achieve safety milestones with anniversary for number of years up two seven for one of our plants without a recordable case I want to congratulate all of our employees on this excellent performance but.
Safety journey is never complete and we all need to remain focused on this critical priority.
While our performance in the quarter was excellent.
Always focused on maintaining and improving our safety performance you can never be taken for granted.
Turning to our financial results shipments were 401000 tons.
4% compared to the first quarter of 2021, due to higher shipments and Barb and A&P.
Revenue increased 48% to 2 billion euros. This was primarily due to higher metal prices remember what our revenues are affected by changes in metal prices, we operate to pass through business model, which minimizes our exposure to missile price risk.
Our value added revenue, which reflects our sales excluding the cost of metal was 652 million euros of 21% compared to the first quarter last year.
Our net income of 179 million euros compared to 48 million euros into first quarter of 2021.
As you can see in the bridge on the top right. Adjusted EBITDA was 167 million euros, 38% above the first quarter of 2021, we stop adjusted EBITDA, increasing by 14 million euros and anti adjusted EBITDA, increasing by 34 million euros versus the prior year.
Performance was ahead of our expectations for the quarter and a new record for us in the first quarter.
Underlying this performance was a rebound in aerospace demand and solid cost performance as well as continued strong demand from packaging and industrial customers.
We are experiencing significant cost pressures, which Peter will discuss in more detail, but thanks to our pricing power contractual protections and I'll work on costs, we are managing the current inflationary environment very well.
Moving now to free cash flow, we extended our track record of consistent free cash flow generation was 26 million euros in the quarter.
As you can see on the bottom right side, we demonstrated our commitment to deleveraging and ended the first quarter at three two times hold down one full times from the end of the first quarter of last year we.
We remain committed to achieving our medium term leverage target of two five times.
Overall, I am very proud of our first quarter performance, we delivered strong adjusted EBITDA solid free cash flow generation and further deleveraging despite significant inflationary pressures.
Looking for World There are clearly uncertainties on the macroeconomic front and on the geopolitical front was the war in Ukraine, which I will come back to later in the presentation.
However on a positive note we have demonstrated our ability to successfully manage the business through challenging times and we all demonstrating our ability to offset the current inflationary pressures.
In addition, we are seeing a strong order book in most of our businesses.
As a consequence, we are optimistic about our prospects for the remainder of this year and beyond and we are raising our 2022 adjusted EBITDA guidance to a range of 642 660 million euros that increases our previous guidance of 600 to 620 million euros.
In addition, we now expect free cash flow in excess of 170 million euros in 2022 that increases our previous guidance of greater than 150 million euros.
At our recent analyst day, we presented a long term vision for the company that includes volume growth underpinned by sustainability, driven mega trends, improving profitability and returns and an ambitious set of sustainability targets. We're a highly focused on executing our strategy.
Our ESG targets delivering on our long term guidance of greater than 800 million euros of adjusted EBITDA by 2025.
And increasing shareholder value with that I will now hand, the call over to Peter for further details on our financial performance.
Thank you Jean Marc and thank you everyone for joining the call today. Please turn now to slide seven.
We began disclosing a new metric for our business bar or value added revenue at our analyst day earlier this month.
As a reminder, <unk> is effectively our gross revenue minus the cost of metal.
Going forward, we will report this metric each quarter.
<unk> added revenue was 652 million euros in the first quarter of 2022 up 21% compared to the prior year.
$8 million of this increase was due to higher volumes and PARP.
67 million euros was due to improved price and mix the price and mix bucket includes a $10 million customer payment related to a contractual volume commitment in A&P.
The balance of the change was due to favorable FX translation tied to a stronger U S. Dollar.
There are two important takeaways from this slide first as Mark noted the topline dynamics in our business are strongly favorable.
With adjusted EBITDA of 167 million euros in the quarter our margin on value added revenue in the quarter was 25, 7%.
Now turn to slide eight and let's focus on our PARP segment performance.
Adjusted EBITDA of $82 million increased 20% compared to the first quarter of 2021.
Volume was a tailwind of 6 million euros as higher shipments in packaging and specialty rolled products offset lower shipments and automotive rolled products.
Packaging shipments increased 6% versus last year on continued strong demand.
Automotive shipments decreased 6% versus last year on continued impacts from a semiconductor shortage.
Price and mix was a tailwind of 24 million euros, unimproved price, including inflation related pass throughs and a stronger packaging mix.
Costs were a headwind of 20 million euros as higher operating costs due to inflation more than offset favorable metal costs.
FX translation, which is noncash.
Tailwind of 4 million euros in the quarter due to a stronger U S dollar.
Now turn to slide nine and let's focus on the A&P segment adjusted.
Adjusted EBITDA of 53 million euros increased to 169% compared to the first quarter of 2021 volume was a tailwind of 11 million euros aerospace shipments increased 23% and tid shipments increased 11%.
And mix was a tailwind of 32 million euros, unimproved price, including inflation related pastures, and stronger mix with more aerospace and a better mix.
As I mentioned before and the discussion of our the price and mix bucket in the first quarter included a customer payment of $10 million related to a contractual volume commitments.
Costs were a headwind of 10 million euros on higher operating costs due to inflation and production increases fs.
Next we have a tailwind of $1 million in the quarter due to a stronger U S dollar.
Now turn to slide 10, and let's focus on the F&I segment adjusted.
Adjusted EBITDA of 37, adjusted EBITDA of 37 million euros decreased by 3% compared to the first quarter of 2021 volume was a $1 million euro tailwind as industry shipments increased.
11% on strong broad based demand, while automotive shipments decreased 12% due to reduced demand, resulting from the semiconductor shortage.
And mix was a $13 million euro tailwind unimproved price, including inflation related pass throughs and stronger industry mix.
Costs were a headwind of 15 million euros.
Higher operating costs due to inflation.
Now turn to slide 11, where I want to give an update on the current inflationary environment, we are facing and our focus on cost control to offset these pressures.
First in the first quarter as expected, we experienced more significant inflationary pressures across the business than in previous quarters, many of which were exacerbated by the war in Ukraine. As you know we operate a pass through business model. So we are not materially exposed to changes in the price of aluminum.
Our most significant cost input.
That said metal supply remains tight today, and we are tactically and strategically doing what we can to carefully manage our metal inputs.
The cost of alloying elements like magnesium are significantly higher this year due to supply disruptions and to the actions we have taken in recent quarters to secure supply.
Non metal costs like labor energy maintenance equipment and supplies and transportation are all higher compared to last year with respect to energy as previously noted we purchase it on a rolling forward basis, which has helped us mitigate some of the current cost pressures however are any.
<unk> cost will run materially higher this year, particularly in Europe , given the extraordinary energy price increases.
Now let me discuss the various tools, we have to offset these inflationary pressures.
Our businesses continue to focus on cost control and again delivered strong cost performance in the quarter.
Our recently announced vision 25 initiative, which will continue many of the horizon 'twenty two projects around metal operating excellence and fixed cost will help us combat rising costs in the future.
On the commercial side many of our existing contracts have inflationary protection, such as PPI and flavors or surcharge mechanisms were also signing new contracts with better pricing and inflationary protections.
To provide one notable example.
We have had very good success in adding magnesium price protection mechanisms across our customer base.
While inflation will be significant in 2022, we believe it is manageable and then it will be largely offset by improved pricing and a relentless focus on cost control.
Net impact of inflation and the actions we are taking to offset it are included in our revised guidance for 2022.
Now, let's turn to slide 12, and discuss our free cash flow.
We generated 26 million euros of free cash flow in the first quarter strong adjusted EBITDA and lower cash interest despite working capital build associated with increased activity and higher metal prices.
As you can see on the bottom left of the slide we have continued to deliver on our commitment to generate consistent strong free cash flow since the beginning of 2019, we have generated over $490 million of free cash flow.
Looking at 2022, we now expect to generate free cash flow in excess of $170 million.
We expect capex to be between $250 and 260 million euros, we expect cash interest of approximately 100 million euros, which.
Which represents a milestone for the company and reflects the significant actions, we have taken to reduce debt and cash interest, we expect cash taxes of $20 to $25 million.
Now turn to slide 13.
Let's turn to slide 13, and discuss our balance sheet and liquidity position.
At the end of the first quarter, our net debt was $2 billion euros, but this is roughly flat compared to the end of 2021 of 26 million euros of free cash flow generated in the quarter was mostly offset by unfavorable noncash FX translation with the strengthening of the U S.
<unk>.
Our leverage reached a multi year low of three two times at the end of the first quarter or down one four times versus the end of the first quarter of 2021.
Given our revised 'twenty two guidance for adjusted EBITDA and free cash flow, we expect leverage below three times by the end of 'twenty two.
And we remain committed to deleveraging and achieving our two five times leverage target.
As you can see in our debt summary, we have no bond maturities until 2026.
We are proud of the progress we have made on our capital structure and have the financial flexibility that we are building our.
Our liquidity was strong at 853 million euros as of the end of the first quarter.
With COVID-19, hopefully largely behind US we are likely to reduce the extra liquidity, we added during the pandemic over the coming quarters.
Ill hand, the call back to his remarks.
Thank you Peter before updating you on our end markets I wanted to address the war in Ukraine as it relates to <unk> Stadium, Please turn to slide 15.
I need to start by recognizing the tragedy of this conflict and the humanitarian crisis. It is creating this is a horrible situation for Ukraine and totally unnecessary.
This fall the war has had a limited impact on <unk> beyond its broader impacts on commodity prices, we have no operations and de Minimis sales, either Russia or Ukraine, we do buy a limited amount of metal from Russia. We also like the rest of Europe get a function of all natural.
<unk> from Russia.
Date, our operations have not been materially affected we are obviously monitoring the situation very closely.
Let's turn now to slide 16, and discuss the current outlook for our end markets.
Those of you were able to participate in our recent analyst day. The messages remained consistent demand generally remains very strong and the markets that we serve while benefiting from sustainability driven secular growth trends such as consumer preference for infinity, a recyclable aluminum cans.
Light weighting in transportation and the electrification of the automotive fleet <unk> is well positioned today with our diverse and balanced portfolio to capture this growth.
Starting with packaging packaging is a core market for steady other than represented 44% of our revenue over the last 12 months the.
The growth in demand for aluminum cans is underpinned by consumer preference for <unk> versus other alternatives, such as plastics or glass aluminum cans are infinity recyclable, making them the most sustainable beverage packaging container and well understood participant in the circular economy.
The packaging market is strong in both North America, and Europe , we expect mid single digit demand growth in the medium term, which we supported by cadden maker capacity additions in both regions as exemplified by recent announcement of two new can lines and the expansion of an existing plant by adding another Kent.
Line in Europe .
We are doing our best to meet the needs of our customers. We recently announced a series of projects to unlock 200000 tons of capacity by 2025 to serve these growing market and another 140000 tons by 2030.
These brownfield projects will expand our capacity in both North America, and Europe and come with very attractive returns for our shareholders.
Now, let's move to automotive automotive represented 25% of our revenue over the last 12 months stadium as well position in boots sheet and extrusion to benefit from the secular shift to aluminum to Moody's and the electrification of the automotive fleet electric vehicles need to be light to meet their range.
Objective, which makes aluminum the logical material of choice for auto body sheet crash management systems structural components and battery and closures. We also expect continued light weighting of internal combustion engine vehicles to meet increased regulation to society or focus in <unk>.
And demand for improved safety and performance.
Near term automotive demand continues to be hindered by the semiconductor of shortage.
<unk> experienced production stuff that <unk> gained in the first quarter. We expect these to continue in the second quarter of this year and to modestly improve in the second half from.
From an end market demand perspective.
We remain very positive on this end market and unique growth potential dealer inventories remain low and we believe underlying consumer demand remains very strong, especially for light trucks, Suvs and luxury vehicles.
Australia has greater exposure.
Let's turn now to aerospace aerospace returned to year over year growth for us in the first quarter.
Over the last 12 months aerospace represented 7% of our revenue, which is down from 15% in 2019 pre COVID-19 major.
The major Oems have announced build rates increasing in the near term and we are now seeing these translate into increased customer holders do we still expect the path to full recovery to be gradual.
Over the longer term, we remain confident that the fundamentals driving aerospace demand remain intact, including growing passenger traffic and greater demand for new more fuel efficient aircraft.
Turning lastly to specialties spin.
Specialties represented 24% of our revenue over the last 12 months, we continue to execute on our strategy of expanding in niche products in a diversified range of markets in general These markets are dependent upon the health of the industrial economies in Europe and North America.
It is also of note that many of the sustainability driven secular growth trends impacting our other core markets of very much at play here as well for example, lightweight Genie is driving increased applications for Illumina in rail trucks and boats.
In addition increased investments in renewable energy east.
Is increasing demand for our extruded products.
Specialties markets I'll generally strong today in both Europe and North America.
Turning to slide 17, we detail our key messages and financial guidance.
<unk> performance in the first quarter of 2022 was very strong we delivered record adjusted EBITDA of 167 million euros through solid operational performance and strong cost control in the face of significant inflationary pressures and other supply chain challenges across our business.
Potently. We also further extended our track record of free cash flow generation and further deleverage our balance sheet to a multiyear low of three two times net debt to adjusted EBITDA.
Looking forward, we are well positioned to deliver a strong performance in 2022 and beyond demand remains strong across most of our end markets are strongly believes the demand growth. We are seeing across our end markets as durable given the sustainability driven secular growths mega trends behind them.
We are confident in our ability to offset the current inflationary pressures with improved pricing and a relentless focus on cost control. We remain focused on execution and we are excited by the opportunities to grow our business and to enhance profitability and returns for.
For 2022, we are now targeting adjusted EBITDA of 642, 660 million euros and free cash flow in excess of 170 million euros.
Guidance assumes business conditions remained roughly as they are today.
Long term, we are targeting adjusted EBITDA in excess of 800 million euros by 2025.
We remain focused on operational and fulfillment cost control free cash flow generation the achievement of our ESG objectives.
Shareholder value creation, I am very optimistic about the future with that operator, we'll now open the Q&A session. Please.
Certainly as a reminder to ask a question you will need to press star one on your telephone.
So withdraw your question press the pound key.
And our first question comes from the line of Emily <unk> with Goldman Sachs.
Good morning, and thanks for taking my question.
My first one is around the updated EBITDA guidance and free cash flow guidance that I believe historically, you've seen some seasonality in your EBITDA profile.
Q2, and Q3 have historically been strong with Qantas.
I guess given this robust performance that we've seen in Q1 is that what's driving the.
Increased confidence in raising full year guidance or is that increased visibility on cost controls throughout the course of the year.
Yes, good morning, and thanks for the question well Booth Youre right that there is seasonality in our business in Q2 Q3 tend to be stronger Q4 tends to be weaker.
We are seeing.
Very good results with our ability to pass through inflation.
Yeah.
Pressures onto our customers. We are seeing good results in terms of executing in our plants and managing costs and also the visibility order book has grown.
This is a substantial raise to our guidance.
And a lot of it has to do with arrows to the aerospace market and we saw.
The order book Firming up for the rest of the year quite recently and this is a very.
Very good omen for the future. So that's what's driving the.
The guidance update.
Update.
Understood and that makes sense.
My follow up is.
Taking a different route there and we've seen some news headlines around.
Gas delivering holds from Russia to a couple of countries in Europe .
Ali impacts at this point that you can foresee to your customer base at all to your own operations in Europe at this point, yes, so youre right to point that out.
Yesterday that it would start deliveries in Poland in Bulgaria, we don't have operations sales. So it doesn't have an impact on this.
And as far as far as the customers are concerned we do have some customers that have operations in Poland.
And that could have some impact on them I don't know, it's very recent but I don't think that would be material to the rest of the company, but clearly we are monitoring the situation very closely because.
Should that situation.
Other countries than it could have a detrimental effect on our operations.
And the operations of our customers as well.
Understood. Thank you.
Thank you.
And our next question comes from the line of Curt Woodworth with credit Suisse.
Yes, good morning, John Mark and Peter Congrats on the start.
Thank you good morning, Kurt.
Yes.
First question is just within the E&P segment.
It seem like volume and mix certainly within aerospace was significantly maybe better than you expected last quarter. So I was just wondering if you could provide a little.
More color on what Youre seeing on the aerospace side of the business and how you see volume and margins trending into <unk> and then just.
The pricing you've called out $32 million of price in A&P was the $10 million one time benefit included in that number.
And can you parse out the pricing benefit between leverage the arrow versus the Tid segment, because my understanding was that typically the aerospace pricing is fairly fixed thank you Joe.
I'll start and Peter will help me Kirk so to give you a bit of color of whats happening in Aero I mean, excuse me to go back in time right. We commented the way to go about.
Sales in arrow going down, 50% compared to where they were before when actually the build rates. So I'm not going down by as much and the reason for that was massive destocking throughout the supply chain people were holding cash.
Depleting inventories as much as they could through the crisis and now what we knew would happen at some point.
He is happening.
Timing of when you do that then was always unclear because you never know until you know.
Typically what we've seen in the past cycle takes.
A couple of months for the supply chain to experience that.
<unk> scaled back up very quickly so that's what's happened.
In the first quarter and we didn't know where there are initially whether that was a very strong and durable, but we are now seeing it with our order book is being durable.
That's why we've got quite strong visibility for the rest of the year. So this is happening and that this is creating is customers wanting to buy outside of the major contracts, we have in excess of what the.
They would buy typically on the spot market or in the short term.
Contracts and therefore that creates a lot of.
A excitement throughout the.
The industry to get all these volumes ramped up and ready we are fortunate enough that we made the bet that 2022 was the year when it would snap back. So we brought back some results season, Thats why youre seeing some increased costs as well.
To make sure we have ramped up and meet the demands of our customers. So we're in a good place and we're looking at the rest of the year as being <unk>.
Strong and getting getting progressively stronger so that's a good thing when it comes to your question on pricing, Yes, 10 million one off payment is included in the in.
I think $32 million virtually.
So that's a one off Kelly.
And maybe Peter you want to add if you will the only thing I'd say is that.
So again.
Aerospace tons as we've said in the past they are very remunerative tons. So the margins on those tend to be very good.
We are we do we are in.
Long term.
Contracts on the aerospace tons. So we don't we haven't renegotiated.
A lot of aerospace contracts in the context of this period.
But I would also say that the tid margins are very strong currently.
And we have negotiated a number of tid contracts and we are able in those contracts to get higher prices and including some of the inflationary pass through so you're seeing that effect too.
In the in that price bucket.
Okay and then.
Within automotive.
Can you just comment on what Youre seeing there in terms of the supply chain the visibility and if you could maybe compare and contrast kind of how youre seeing trends evolve.
In U S and Europe .
For the second quarter, thanks very much.
Yes, so we're still seeing.
Disruptions in the supply chain and.
Production stoppages that different Oems, which come with very short notice.
And we expect that state of <unk>.
Flex to continue for the rest of the year with maybe some improvement in second half, but I think a year ago with also hoping for an improvement in the second half of 'twenty, one which didn't materialize at.
At the moment, what it means for ICD as well typically are running 15% to 20% below.
Full capacity utilization, so that gives us some margin to grow and we believe this will.
Normalize at some point to go to contracts to feed hotel lines. So we hope these are <unk>.
<unk> resolves itself.
At some point, but.
<unk> guidance, we have not we are not expecting for it to be resolved this year.
And the only thing I'd add is that again in packaging, we have in the <unk> business, we have the benefit of being able to supplement.
Packaging tons for Mister auto tons and in our <unk> segment, we have the ability to supplement incremental industry times four.
Kind of auto structures tons, so that give some offset we've kind of calibrated that at about a $5 million euro per quarter run rate and we'd still be somewhere in that ZIP code in other words, not a major improvement from what we saw in the fourth quarter.
Okay. Thank you.
Thank you.
Thank you.
Question comes from the line of David Gagliano with BMO capital markets.
Thanks for taking my questions I just have a couple of.
Clarification questions on some of the commentary first of all in the.
A&P business $961.
I hope you can join euros margin per ton.
We simply take the 10 million divided by 55000 tons. Its 181 dollar sorry Euro 181 Euro margin benefit is that rates are we back that out on a go forward basis, which gets.
Margins per ton down to about 800 euros is that a reasonable assumption moving forward for the A&D business, well I would definitely back out the one time adjustment and then we have guided to 7% to 800 per ton for that business. Now are they all comes back then we should get into that range, but.
I would definitely make the onetime adjustment.
Okay and it is straight right just 10 million divided by two to 5000 tons of straight to the margin line exactly.
Exactly okay.
Okay and then just.
On the natural gas exposure to Russia, you mentioned, it's more material then obviously the other raw materials can you quantify how much exposure there and can you talk through.
Direct implications for natural gas exposure to Russia outside of Poland, If things change sure. So.
In terms of price.
We essentially.
The guidance. We gave you consider that we have looked at and then we have locked in natural gas prices for the rest of the year. So we don't have really a price exposure, we could even availability exposure is Russia.
Decides to shut off the gas or if Europe decides could not buy from Russia.
In degrees of varying degrees of it.
We.
Most.
Our biggest users of gas or plants in France, which is less dependent than the average of Europe .
And so the Germany.
Less dependent on Russian guests for their supply.
Now what happens in case that is skilled statement of guests deliveries for whatever reason is impossible to fathom right because we do get to a place where you don't know.
What priorities are going to be given to buy what governments to what sectors too.
Private to consumer versus industrial consumers, so I wouldnt venture into.
Trying to assess different scenarios because they are because most of them makes it impossible to tell.
Okay, Yes understood.
Extremely complex situation there, but can you just give us what percentage of your.
Natural gas supplies for your operations in Europe comes from Russia.
It depends it depends by country.
And we don't know we don't buy we don't buy from Russia, we buy from the local utilities and then <unk>.
Get to a government mandate till you get to a war.
Economy right.
Utilities are going to be.
Located in Russia, and I think you get to a place with your exposure to Russia becomes.
Yes.
CRA Cool thing did you just say you are French needs, 20% of guests natural guessing French goes from Russia for instance, now the French for utilities will decide upon depending on what the government will tell them to do who's getting the 80% of the gas that is left and we don't know how that works is no way to tell.
Im not trying to dance around the question I think there is no and so that he said that anybody knows at this stage.
No. That's helpful. I appreciate the additional color. Thanks.
Sure David.
Thank you and our next question comes from the line of Timna Tanners with Wolfe Research.
Hey, good morning.
I wanted to just maybe im sorry, if im being a little pedantic on the on the guidance. If we do back out that kind of more one time item and then annualize it does seem like Q1.
It's kind of a steady story for the rest of the year, but I also understood that you were expecting perhaps better volumes in the second half and steadily improving aerospace. So should we interpret the guidance is saying that higher volumes will be somewhat offset by higher costs or is there something I'm missing here.
No I think Thats I think thats a reasonably good summary, I mean.
Again, we have.
With aerospace hopefully continuing to improve through the year.
Our other businesses are generally strong we're not assuming that there's a big change on auto maybe a slight improvement in the back half of the year. So.
Aerospace is probably the big mover there.
And then we will have higher costs as we go through the year.
Energy in particular as we.
<unk> talked about are as we mentioned in our prepared remarks, so I think thats a fair summary timna.
Okay. So margin expansion opportunity is not embedded in guidance.
Guidance, but but in the past we have seen a bit of it just stem and volume recovery is that is it just fair to say that for now you're not assuming much expansion in margins or volumes were assuming that margins are more are staying relatively constant over the rest of the year.
And again, if aerospace comes quicker that could be some upside.
There could be some upside to that if auto comes back stronger there could be some upside to that so there are some potential benefits but.
Again, it's early in the year and it's hard to call. These things and particularly when you have the backdrop of some of the crazy craziness going on with the macroeconomic and geopolitical fronts.
Sure I appreciate that and thanks again.
Thank you.
And our next question comes from the line of Korean Blanchard with Deutsche Bank.
Hey, good morning, John Marc and Pizza.
Most of my question have been announced they have made.
Jess can you.
A little bit of viewing.
And back on the pricing train between packaging and Alto.
I think you're seeing some improvement from from the <unk> side, but just trying to understand the mix.
Thank you.
Yeah, Joe So packaging we.
We do see an improvement in pricing continues and we see it on the occasion of contract renewals and in our ability to pass through inflationary pressures with dilutive is it a little bit trickier.
In terms of.
Pushing any inflation.
Two customers.
And but we expect that this will normalize over time. So when you look at the bridges that pizza share Denise.
<unk> remarks, you see that there is quite a bit of a.
The net of price and cost is very favorable involved and he's kind of neutral.
<unk>, which is more exposed to automotive and that gives you a bit of a flavor for.
The differentiated ability, we have an increasing pricing in <unk> versus <unk>.
Packaging, but overtime I expect us to be able to further increase prices you know who some of.
It's just not happening as quickly as in packaging and in 2022.
And just like.
Just like we experienced in the packaging business you have to be patient right. These are long term contracts and we believe that.
Supply demand relationship is going to tell the story and ultimately it's going to turn in our favor and we will have opportunities there.
Great. Thank you and maybe one more on the free cash flow.
Guidance. If you can just comment on the cadence that youre facing trial right from the yen walking caps Paraguay.
Yes, so so on trade working capital.
We did have a build of trade working capital in the first quarter and that's really tied to a couple of things you've got some seasonality there.
You've also got the aerospace recovery and you have some impact from higher metal prices.
So so we expect that working capital should be maybe a modest use for the rest of the year.
And then Capex, we will we tend to spend our capex on a more back end weighted basis and that has to do with the fact that the best time to do Capex is when our customers are shut down and that tends to be kind of in the later part of the year.
So.
And in EBITDA remember that EBITDA, we have our first two quarters are typically the strongest.
Kind of with Q3 being also a good quarter Q4 tends to be a little bit lighter.
And I would expect the overall free cash flow to be more or less equally distributed but wanted to get to the 170 more or less equally distributed over the over the back half of the year. There is some kind of puts and takes in each quarter.
But obviously.
It will likely improve from the in the second quarter, although improved from the first quarter.
Alright. Thank you that's helpful that the economy.
Thank you.
Next question comes from the line of Josh Sullivan with Benchmark company.
Hey, good morning.
Hey, Josh.
Just to follow up on aerospace clearly a strong backup backstop here.
But you have some longer Timeframes 787, Triple seven X there were telegraphed to the market.
Looking at some titanium constraints longer term.
These factors and the <unk>.
Look.
Our distributors may be looking at these issues.
Against that overall restocking trend.
Yes, so Josh we're not expecting a lot of good news on the widebody side in 2022, and our outlook. So really what we're seeing in the increased pool from our customers for narrow body single aisle aircraft. So that's what we're seeing for 2022 and for our long term guidance 2025.
We think we'll be in a place where.
The wide bodies would have normalized back to where they were pre COVID-19 .
By and large.
So thats, what we have embedded in all of social too short term outlook and long term guidance and.
And we don't see like you called out titanium, we don't see titanium is up 22 issue.
Right Okay. Okay.
And then just as aerospace demand does pick up here, how does that impact your tid capacity are you able to get some extra pricing power outage tid as aerospace maybe heats up a little bit more of that supply.
So typically you're absolutely right in aerospace.
<unk>.
Heavily tid pricing improve so we expect that to continue the challenge will be for us to keep all the volumes we have.
Tid when aerospace goes back to its full potential and Thats why ingredients still king.
Stay in grid, you're talking about the investments you are making and the focus we have in a.
Debottlenecking, our plan said, adding.
Adding some more capacity so that we can maintain our tid volumes grow our aerospace and enjoy the benefits of it.
Better pricing power, even better pricing power.
Thank you.
Sure.
Thank you.
Reminder, if you have a question. Please press star one on your telephone once again to ask a question. Please press star one.
Our next question comes from the line of Karl Blunden with Goldman Sachs.
Hi, good morning, and congrats on the strong results. Thanks Carl.
Just.
Two clarification items.
One with the volatility in energy prices I appreciate your commentary around the timing that that flows through is there.
Any change that you are looking into.
For contract structure for example to account just to higher volatility, we're seeing particularly in the European region.
Yes, it's a good question.
Yes is the answer we're always looking at ways to do this better.
And typically for the most part.
What we do is we buy our NRG as Jean Marc said from our local supplier.
And then we kind of do the <unk>.
Price fixing with them right. So.
And there are some limitations on how far forward you can buy the NRG when youre buying it from the supplier.
So there are opportunities to potentially use the financial markets to buy a little bit further out so we're investigating some of that but.
In the short term, we're trying to find the opportunities to lock in energy prices that are kind of manageable over the next couple of years or so.
And the curves are quite backward dated so there are opportunities to.
Lock in longer term energy prices now despite the.
Current elevated prices.
Commercial side with our customers, we want to make sure that the contracts we enter into factor in the elevated price of energy. So that's also a big dump.
<unk> for us to make sure that we all notes last week.
Exposure on the energy side.
That makes sense.
Just on the Arrow there has been some discussion already with that you anticipated higher volumes and prepared for that through some investment and resources a little bit of Capex.
Kind of a sense for how much growth in shipment volumes you can support before you would need to see another step change in how much you are investing in the business or do you feel quite comfortable with.
The current trends, we feel quite comfortable with the current trends and we believe that we can go back to the pre COVID-19 levels and maintained our high yield tid shipments with the investments that we discussed at the at any stage just a few weeks ago.
Overall for the company. So we feel we're in a good place I mean, it's going to take a lot of work and strong execution to get there, but we feel we can do it.
Thanks for the time.
Yeah.
Thank you I'm showing no further questions so with that I'll turn the call back over to John Marc Germain CEO of <unk> for any closing remarks, well. Thank you very much everyone for your participation today as you can see we are very pleased with our full months now and our outlook for the year I think.
These very challenging times in the lot of lots of uncertainties, obviously that we're showing again that we are able to navigate the troubled waters, we're able to pass through inflationary pressures, we see continuing demand for our product and we look at the future with as much optimism as is possible given the circumstances. Thank you so much and have a good day.
Bye bye.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating and you may now disconnect.
Okay.
Thank you.
Sure.
Okay.
[music].
Yes.
Yes.
Okay.