Q1 2024 Constellium SE Earnings Call
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Castellum first quarter 2024 results call. All lines will be placed on mute during the presentation portion of the call with an opportunity for question and answer at the end. If you'd like to ask a question, please press start followed by one on your telephone keypad. I would now like to turn this conference call over to our host, Jason Hershiser, Director of Investor Relations. Please go ahead.
Ladies and gentlemen, thank keep astounded by welcome to the Valeant last quarter Cheez balls from 'twenty full results call.
Speaker Change: All lines have been placed on mute during the presentation portion of the call with an opportunity for a question and answer yes if.
Speaker Change: If you'd like to ask a question. Please press star followed by one on your telephone keypad I would not like to turn this conference call I thought twice.
Felicia: Hi, Felicia.
Felicia: Sorry, Richard Investor Relations. Please go ahead.
Jason Hershiser: Thank you, Candice. I would like to welcome everyone to our first quarter 2024 earnings call. On the call today, we have our Chief Executive Officer, John Mark Germain, 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. This call is being recorded.
Richard: Thank you Candice I would like to welcome everyone to our first quarter 2024 earnings call on the call today, we have our chief Executive Officer, and Marc Germain and our Chief Financial Officer, Jack well.
Richard: After the presentation, we will have a Q&A session.
Richard: Copy of the slide presentation for today's call is available on our website at <unk> Dot Com today's call is being recorded before.
Jason Hershiser: 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-S. All information in this presentation is as of the date of this presentation.
Speaker Change: Before we begin I'd like to encourage everyone to visit the company's website and take a look at our recent filings.
Speaker Change: This call May include forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Speaker Change: 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.
Speaker Change: 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.
Jason Hershiser: 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 to today's slide presentation, which supplement our IFRS disclosure. Before turning the call over to John Mark, I wanted to remind everyone that, beginning this quarter, we have revised the definition of adjusted EBITDA at the consolidated level, based on discussions with the SEC.
Speaker Change: We undertake no obligation to update or revise any forward looking statements as a result of new information future events or otherwise except as required by law.
Speaker Change: In addition, today's presentation includes information regarding certain non-GAAP financial measures.
Speaker Change: Please see the reconciliations of non-GAAP financial measures attached to today's slide presentation, which supplement our <unk> disclosures.
Speaker Change: Before turning the call over to John Mark I wanted to remind everyone that beginning this quarter. We have revised the definition of adjusted EBITDA at the consolidated level based on discussions with the SEC.
Jason Hershiser: The new definition will no longer exclude the non-cash impact of metal prices. However, we will continue to provide investors and other stakeholders with the non-cash, metal price lag impact as it is necessary to get a true assessment of the economic performance of the business. Our segment, Adjusted EBITDA, will continue to exclude the impact, and we will continue to provide guidance for Adjusted EBITDA that excludes the impact.
John Clark: The new definition will no longer exclude the noncash impact of metal price lag.
John Clark: We will continue to provide investors and other stakeholders with the noncash metal price lag impact as it is necessary to get a true assessment of the economic performance of the business.
John Clark: Our segment adjusted EBITDA will continue to exclude the impact and we will continue to provide guidance for adjusted EBITDA that excludes the impact.
Jason Hershiser: And with that, I would now like to hand the call over to John Murray. Thank you, Jason. Good morning.
John Clark: And with that I would now like to hand, the call over to John Murray. Thank you, Jason Good morning, and good afternoon, everyone and thank you for your interest income stadium.
John Clark: Good morning, good afternoon, everyone, and thank you for your interest in Constel.io. Let's begin on slide five and discuss the highlights from our first quarter results. I would like to start with safety, our number one priority.
John Clark: Let's begin on slide five and discuss the highlights from our first quarter results I.
John Clark: I would like to start with safety our number one priority, while we delivered strong safety performance in the first quarter, our recordable case rate of $2 2 million.
John Clark: While we delivered strong safety performance in the first quarter, our recordable case rate of 2.2 per million hours worked is higher than our target performance. This is a humbling reminder that while we always strive to deliver best-in-class safety performance, we all need to constantly maintain our focus on safety to achieve the ambitious targets we have set. It is a never-ending task for our company and one we take very seriously.
The hours worked is higher than our target performance. This is a humbling reminder, that while we always strive to deliver best in class safety performance, we all need to constantly maintain our focus on safety to achieve the ambitious targets. We have set it is a never ending task for our <unk>.
John Clark: And one we take very seriously.
John Clark: Turning to our financial results, shipments were 380,000 tons, down 2% compared to the first quarter of 2023, mainly due to lower shipments in ASNI, partially offset by higher shipments in power. The lower shipments in ASNI were largely a result of the German extrusion business we sold last year. Revenue of 1.7 billion euros decreased 12% compared to last year, primarily due to lower metal prices and lower shipping. However, 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.
John Clark: Turning to our financial results shipments were 380000 tons down 2% compared to the first quarter of 2023, mainly due to lower shipments in the F&I, partially offset by higher shipments in both.
John Clark: The lower shipments in the F&I were largely a result of the German extrusion business, we sold last year.
John Clark: Revenue of $1 7 billion euros decreased 12% compared to last year, primarily due to lower Mitchell prices and lower shipments remember while our revenues are affected by changes in metal prices, we operate to burst through business model, which minimizes our exposure to metal price risks.
John Clark: Our net income of €17 million in the quarter compares to net income of €22 million in the first quarter last year. Justitia Vida's turnover was €137 million in the quarter, though this includes a negative non-cash impact from the metal price lag of €13 million. If you exclude this impact of the metal price lag, as Jason mentioned earlier, which you must if you want to have the real economic performance of the business, the adjusted EBITDA reflects €150 million in the quarter compared to €166 million last year.
John Clark: Net income of 17 million euros in the quarter compares to net income of 22 million euros in the first quarter of last year.
John Clark: Adjusted EBITDA was 137 million euros in the quarter.
John Clark: This includes a negative noncash impact from metal price lag of 13 million euros. If you exclude this impact of metal price lag as Jason mentioned earlier, which you must if you want to add the real economy performance of the business.
John Clark: Adjusted EBITDA reflects a 150 million euros in the quarter compared to 166 million euros last year.
John Clark: Looking at segment adjusted EBITDA, A&T delivered record first quarter performance and was up 7 million euros compared to last year. BARP decreased 12 million euros in the quarter, and S&I was down 10 million euros. As we mentioned on our earnings call back in February, the PARP segment was impacted in the quarter as a result of the extreme snow and cold weather event at our Muscle Shoals facility in January. The weather event caused a full week of closure at the facility and then a difficult ramp back up once employees were able to return to work.
John Clark: Looking at segment adjusted EBITDA Emt delivered record first clubs up the Assortments and was up 7 million euros compared to last year.
John Clark: <unk> decreased 12 million euros in the quarter and instead was down 10 million euros as we mentioned on our earnings call back in February the bulk segment was impacted in the quarter as a result of the extreme snow and cold weather event, that's all misheard Shoals facility in January.
John Clark: Weather event caused a full week of closure of the facility and then difficult to ramp back up once the employees were able to return to work.
John Clark: Looking across R&D markets, aerospace demand continued to grow in the quarter. Packaging shipments were also up in the quarter, including camp stocks. Automotive demand remained healthy in North America, while softer demand continued in Europe. Demand in most industrial and other specialty markets remained weak in both regions during the quarter.
Looking across our end markets aerospace demand continued to grow in the quarter packaging shipments were also up in the quarter, including Kevin stuck.
John Clark: <unk> demand remains healthy in North America, while softer demand continued in Europe.
John Clark: Randy most industrial and other specialty markets remained weak in both regions during the quarter.
Jack Guo: Moving now to free cash flow. Our free cash flow in the quarter was negative 8 million euros. We continue to expect to generate positive free cash flow this year of greater than 130 million euros. I am pleased to report that we launched our share repurchase program in March and repurchased 330,000 shares for around $7 billion. Our leverage at the end of the quarter was 2.5, 2.4 times, and remains within our target leverage range. Overall, I am quite happy with our first quarter performance. With that, I will now hand the call over to Jack for further details on our financial performance. Okay, Jack?
John Clark: Moving now to free cash flow, our free cash flow in the quarter was negative 8 million euros. We continue to expect to generate positive free cash flow this year of greater than a 130 million euros.
John Clark: I am pleased to report that we launched our share repurchase program in March and repurchased 330000 shares for around 7 million U S dollars.
John Clark: Our leverage at the end of the quarter was $2 five to four times and remains within our target leverage range overall I'm quite happy with our first quarter performance with that I will now hand, the call over to Jack for further details on our financial performance Jack.
Jack Guo: Thank you, John Mark. And thank you, everyone, for joining our call today. Please turn now to slide 7, and let's focus on part of the segment performance. In the first quarter of 2024, ARC generated segment adjusted EBITDA of 43 million euros, which was down 21% compared to the first quarter. As Jean-Marc mentioned earlier, HAARP experienced significant weather-related impacts during the quarter. Despite these impacts, as well as continued operational challenges at Bustle Shoals,
Jack: Thank you Mark.
Jack: And thank you everyone for joining our call today. Please.
Jack: Please turn now to slide seven and let's focus on a PARP segment performance.
Jack: In the first quarter of 2020 for arc generated segment adjusted EBITDA.
Jack: 43 million euros.
Jack: Which was down 21% compared to the first quarter of last year.
Jack: Okay.
Jack: As Mark mentioned earlier ARPA experienced significant weather related impacts during the quarter.
Jack: Despite these impacts as well as continued operational challenges at muscle Shoals harp volume was a tailwind at 4 million euros with higher shipments in packaging and automotive rolled products.
Jack Guo: Harp's volume was a tailwind of €4 million, with higher shipments of packaging and automotive products. Packaging shipments increased 2% in the quarter versus last year. Within packaging, can stock shipments were up in the quarter versus last year, partially offset by lower shipments of specialty packaging from Europe. Automotive shipments increased 1% in the quarter, with healthy demand in North America, mostly offset by softness in Europe.
Jack: Packaging shipments increased 2% in the quarter versus last year.
Jack: Within packaging can stop shipments were up in the quarter versus last year, partially offset by lower shipments of specialty packaging.
Jack: Automotive shipments increased 1% in the quarter with healthy demand in North America.
Jack: Lastly, offset by softness in Europe.
Jack Guo: Price and Mix was a headwind of 9 million euros, mainly as a result of weaker mixing of quarters. Costs were a headwind of $7 million as a result of unfavorable metal costs partially offset by lower operating costs. Now turn to slide A, and let's focus on the A&T section.
Jack: Price and mix was a headwind of 9 million euros, mainly as a result of weaker exiting the quarter.
Jack: Costs were a headwind of 7 million barrels as a result of unfavorable metal costs, partially offset by lower operating costs.
Jack: Now I'll turn to slide eight let's focus on the A&P.
Jack Guo: Adjusted EBITDA of 80 million euros increased 10% compared to the first quarter of last year and is a new first quarter record for A&T. Volume was a headwind of 4 million euros as higher aerospace shipments were offset by lower TID shipments in the quarter. Aerospace shipments were up 6% versus last year as the recovery in aerospace markets continued. However, shipments in TID were down 8% versus last year, reflecting a slowdown in most industrial markets.
Jack: Adjusted EBITDA of 80 million euros increased 10% compared to the first quarter last year and as a new first quarter record for <unk>.
Jack: Volume was a headwind of 4 million euros as higher aerospace shipments were offset by lower tid shipments in the quarter.
Jack: Aerospace shipments were up 6% versus last year as the recovery Aerospace markets continues.
Jack: Shipments in Tid were down 8% versus last year, reflecting a slowdown most industrial markets.
Jack Guo: Price and mix was a tailwind of 8 billion euros, mainly as a result of fixing the quarter with more aerospace. The costs were a tailwind of €3 million, primarily as a result of lower operating costs. Now turn to slide nine, and let's focus on the AS&I section.
Jack: Price and mix was a tailwind of 8 million euros, mainly as a result of mixing a quarter with more aerospace.
Jack: Costs were a tailwind of 3 million barrels primarily as a result of lower operating costs.
Jack: Now I'll turn to slide nine let's focus on the F&I segment.
Jack Guo: But just a week ago, 33 million euros decreased 23% compared to the first quarter last year. Volume was a six million euro headwind as a result of lower shipments in automotive and industry extruded products. Automotive shipments were down 9% in the quarter versus last year as a result of softness in Europe and the timing impact between certain program switches.
Jack: Adjusted EBITDA of 33 million barrels decreased 23% compared to the first quarter last year.
Jack: Volume was <unk> 6 million Euro headwind as a result of lower shipments out of bed and industry extruded products.
Jack: Automotive shipments were down 9% in the quarter versus last year as a result of softness in Europe, and the timing impact between certain programs switches.
Jack Guo: Industry shipments were down 28% in the quarter versus last year, primarily as a result of the sale of a German extrusion business, while the market conditions across industry fusions in Europe remained, Price, and next was a 10-billion-euro headwind, primarily due to a softer pricing environment in the industry and a weaker mix in the..., costs were a tailwind of 8 million euros on lower operating, It is not on the slide here, but I wanted to make some quick comments on holdings and corporate.
Jack: Industry shipments were down 28% in the quarter versus last year, primarily as a result of the sale of our chairman extrusion business, while the market conditions across industry fusions in Europe remained weak.
Jack: Price and mix was a 10 billion euro headwind, primarily due to a softer pricing environment industry and weaker mix in the quarter.
Costs were a tailwind of 8 million euros, a lower operating cost.
Jack: FX and other was a headwind of $2 million in the quarter.
Jack: It is not on the slide here, but I wanted to make some quick comments on holdings and corporate.
Jack Guo: In the first quarter, our holdings and corporate expense was 6 million euros. We continue to expect holdings and corporate expense to run at approximately 40 million euros in 2024, with the increase primarily driven by additional IT spending with the upgrade of our ERP system. 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 costing input.
Jack: In the first quarter, our holdings that corporate expense was 6 million euros.
Jack: We continue to expect holdings corporate expense to run at approximately 40 million barrels in 2024 with the increase primarily driven by additional spending with the upgrade of our ERP system.
Jack: It is also not on the slide here, but I wanted to summarize the current cost environment, we're facing.
Jack: As you know we operate a pass through business model. So we're not materially exposed to changes in the market price of alumina, our largest cost input.
Jack Guo: Throughout 2022 and most of 2023, we were faced with broad-based and significant inflationary pressures. Although the pressure began to ease in some categories in the fourth quarter last year, labor and other non-metal costs continued to be higher this year.
Jack: Throughout 2022, and most of 2023 were faced with broad based and significant inflationary pressures, although the pressure began to ease in some categories in the fourth quarter of last year.
Jack: Labor and other nonmetal costs continue to be higher this year.
Jack Guo: As for energy, our 2020 forecasts are secured at moderately more favorable levels compared to 2023, although energy prices remain well above historical averages. We remain confident in our ability to offset any future inflationary pressures with top-line actions and our relentless focus on cost control, as we've demonstrated in the past. Now let's turn to slide 10 and discuss our free cash flow. Our free cash flow was negative 8 million euros in the first quarter, which was in line with our expectations and better than last year. The year-over-year change is a result of less cash used for working capital and lower capital expenditures, partially offset by lower adjusted EBITDA.
Jack: As for energy our <unk>.
Jack: 2024 costs are secured at moderately more favorable levels compared to 2023, although energy prices remain well above historical averages.
Jack: We remain confident in our ability to offset any future inflationary pressures with topline actions and a relentless focus on cost control as we've demonstrated in the past.
Jack: Now, let's turn to slide 10, and discuss our free cash flow.
Jack: Our free cash flow was negative 8 million barrels in the first quarter, which was in line with our expectations and better than last year.
Jack: The year over year change is a result of less cash used for working capital and lower capital expenditures, partially offset by lower adjusted EBITDA.
Jack Guo: Looking at 2024, we expect to generate free cash flow in excess of €130 million for the full year, which we expect to be weighted more towards the second half. As we noted last quarter, we expect CapEx to be around €370 million this year, which includes higher spending on return-seeking projects such as our Recycling and Casting Center in Dufferzak. The facility is expected to start up on time and on budget in the fourth quarter of this year.
Jack: Looking at 2024, we expect to generate free cash flow in excess of 130 million euros for the full year, which we expect to be weighted more towards the second half.
Jack: As we noted last quarter <unk>.
<unk> capex to be around 370 million this year.
Jack: Which includes higher spending on return seeking projects such as our recycling and casting center aimed at <unk>.
Jack: The facility is expected to start up on time and on budget in the fourth quarter of this year.
Jack Guo: We expect cash interest of approximately $125 million, which includes the impact from higher interest rates; we expect cash taxes of approximately $55 million; and we expect working capital and other to be a modest use of cash for the phone here. With the expected free cash flow generation of over 130 million euros, we intend to use a large portion of the free cash flow this year for our share repurchase program. As Jean-Marc mentioned previously, we launched the share repurchase program at large and repurchased 330,000 shares for 6.9 million U.S. dollars.
Jack: We expect cash interest of approximately $125 million.
Jack: Which includes the impact from higher interest rates.
Jack: We expect cash taxes of approximately $55 million.
Jack: And we expect working capital to other to be a modest use of cash for the full year.
Jack: With the expected free cash flow generation up over 130 billion euros, we intend to use a large portion of the free cash flow this year for our share repurchase program.
Jack: As Mark mentioned previously we launched the share repurchase program in March and repurchased 330000 shares for $6 9 million.
Jack: Dollars.
Jack Guo: We have approximately $293 million dollars remaining for our existing share of the purchase program. Now, let's turn to slide 11 and discuss our balance sheet and liquidity. At the end of the first quarter, our net debt of 1.7 billion euros increased slightly compared to the end of 2023, mainly as a result of unfavorable U.S. dollar translation impacts. Our leverage was 2.4 times at the end of the quarter, or down 0.4 times versus the end of the first quarter of 2023 and within our target leverage range.
We have approximately $293 million with meaning our existing share repurchase program.
Now, let's turn to slide 11, and discuss our balance sheet and liquidity position.
Jack: At the end of the first quarter, our net debt of $1 7 billion euros increased slightly compared to the end of 2023, mainly as a result of favorable U S dollar translation impact.
Jack: Our leverage was two four times at the end of the quarter were down four times versus the end of the first quarter of 2023 and within our target leverage range.
Jack Guo: We remain committed to maintaining our target leverage range of 1.5 to 2.5%. As you can see in our debt summary, we have no bond maturities until 2026, and our liquidity remains strong at €789 million as of the end of the first quarter. I'm also pleased to report that Moody's upgraded our credit rating earlier this month to BA3 with a stable outcome. As a reminder, we received an upgrade from S&P in November last year to BB- with a stable outcome.
Jack: We remain committed to maintaining our target leverage range of one half to two and half times.
Jack: As you can see our debt summary, we have no bond maturities until 2026, and our liquidity remains strong at 789 million euros as of the end of the first quarter.
Jack: I'm also pleased to report that Moody's upgraded our credit rating earlier this month, two three with a stable outlook.
Jack: As a reminder, we received an upgrade from S&P in November last year to double B minus with a stable outlook.
Jack Guo: We're extremely proud of the progress we have made on our capital structure and of the financial flexibility we're building, including the ability to begin returning capital to our shareholders. I will now hand the call back to Jean-Marc.
Jack: We're extremely proud of the progress we have made on our capital structure.
Jack: The financial flexibility, we are building, including the ability to begin returning capital to our shareholders I will now hand, the call back to John Mark.
John Clark: Thank you, Jack. Let's turn to slide 13 and discuss our current and market outlook. The majority of our portfolio today is serving end markets currently benefiting from durable, sustainability-driven, secular growth, in which aluminum, a light and infinitely recyclable material, plays a critical role. Turning first to packaging, inventory adjustments in can stock appear behind us in both North America and Europe.
John Clark: Thank you Jack let's turn to slide 13, and discuss our current end market outlook.
John Clark: The majority of our portfolio today is serving end markets currently benefiting from durable sustainability driven secular growth.
John Clark: Aluminum light and Infinity recyclable material plays a critical role.
John Clark: Turning first to packaging.
John Clark: Inventory adjustments and can Stoke behind us in both North America and Europe.
John Clark: Gunstock shipments have increased in the last few quarters, though demand is still relatively low in the current environment. However, the long-term outlook for this end market continues to be favorable, as evidenced by the growing consumer preference for the sustainable aluminum beverage can, capacity growth plans from can makers in both regions, and the greenfield investments ongoing here in North America. We are expecting growth in CanStock in 2024. In the longer term, we continue to expect packaging markets to grow low to mid-single digits in both North America and Europe.
John Clark: Ken Stoke shipments have increased the last few quarters low demand is still relatively new in the current environment.
John Clark: The long term outlook for this end market continues to be favorable as evidenced by the growing consumer preference for the sustainable aluminum beverage can capacity growth plans from Ken makers in both regions and the Greenfield investments ongoing here in North America.
John Clark: We are expecting growth in can stock in 2024.
John Clark: Longer term, we continue to expect packaging markets to grow low to mid single digits in both North America and Europe.
John Clark: I am pleased to report that the Recycling and Casting Center we are building at our Neufbriswerk facility is well underway and both on time and on budget, as Jack mentioned earlier. The project is still expected to start up in the fourth quarter this year and ramp up quickly in 2025. As I mentioned before, Muscle Shoals was impacted in the quarter by the extreme cold weather.
John Clark: I am pleased to report that the recycling and testing center. We are building itself like facility is well underway and boost on time and on budget as Jack mentioned earlier the.
John Clark: The project is still expected to startup in the first quarter of this year and ramp up quickly in 2025.
John Clark: As I mentioned before muscle Shoals was impacted in the quarter by the extreme cold weather.
John Clark: In addition, the plant continues to face some ongoing operational challenges. However, we are encouraged by the improved performance we have seen there recently, and we expect operations to continue to improve as the year progresses. Turning now to automotives, automotive OEM sales and production numbers globally have increased over the last few years but remain below pre-COVID levels. Demand remains healthy in North America today, though the weaker demand in Europe that we experienced in the fourth quarter last year has continued into the first quarter and will likely persist into the second quarter. In both regions, demand for EVs is continuing to grow, albeit at a slower pace than expected in the past. Consumer demand for luxury cars, like trucks and SUVs, remains steady.
John Clark: In addition, the plan continues to face some ongoing operational challenges.
John Clark: Encouraged by the improved performance, we have seen there recently and we expect operations to continue to improve as the year progresses.
John Clark: Turning now to Automotives.
John Clark: Automotive OEM sales and production numbers globally have increased the last few years, but remains below pre COVID-19 levels demand remains healthy in North America today.
John Clark: Weaker demand in Europe that we experienced in the fourth quarter of last year as continued into the first quarter and will likely persist into the second quarter.
John Clark: In both regions demand for Evs is continuing to grow, albeit at a slower pace than expected in the past.
John Clark: Consumer demand for luxury cars light trucks, and Suvs remains steady.
John Clark: Vehicle electrification and sustainability trends will continue to drive the demand for lightweighting and the use of aluminum products in the long term. As a result, we remain positive on this market over the long term. Let's turn now to aerospace. The recovery in aerospace continued in the quarter, though demand in this market also remains below pre-COVID levels.
John Clark: The vehicle electrification and sustainability trends will continue to drive the demand for light weighting and use of aluminum products in the long term.
John Clark: As a result, we remained positive in these markets longer term.
John Clark: Let's turn now to aerospace the recovery in aerospace continued in the quarter low demand in this market also remains below pre COVID-19 levels major Aero Oems remained focused on increasing build rates for both narrow and wide body aircraft despite ongoing supply chain issues.
John Clark: Major aero OEMs remain focused on increasing build rates for both narrow and wide-body aircraft, despite ongoing supply chain issues and recent safety concerns. Commercial aircraft backlogs are healthy today, 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 strong in the business and regional jet markets and the defense and space market.
John Clark: And recent safety concerns.
John Clark: Commercial aircraft backlogs are healthy today, 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 aircrafts.
John Clark: Demand remains strong in the business and regional jet markets and the defense and space markets.
John Clark: In addition, we continue to experience strong demand for our airware family of products. We're excited about the future opportunities to continue our growth in aerospace and related markets, which I will touch on more in a minute. As the chart on the left side of the page highlights, these three core end markets represent 80% of our last 12 months revenue. Turning lastly to other specialties, we have experienced weakness across most markets for several quarters in a row now. These markets are typically dependent upon the health of the industrial economies in each region. While the U.S. economy remains healthy today, the economy in Europe continues to be weaker.
John Clark: In addition, we continued to experience strong demand for our <unk> familiar of products. We're excited about the future opportunities to continue our growth in aerospace and related markets, which I will touch on more in a minute.
John Clark: Okay.
John Clark: As the chart on the left side of the page highlights. These three core end markets represents 80% of our last 12 months revenue.
John Clark: Turning lastly to other specialties, we have experienced weakness across most markets for several quarters in a row now these markets typically dependent upon the health of the industrial economies in each region.
John Clark: While the U S economy remains healthy today the economy in Europe continues to be weaker.
John Clark: More specifically, our expectations of recovery in European industrial and automotive markets are somewhat tempered versus last quarter, as we are seeing little improvement in economic indicators in this region. In summary, 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 over the longer term.
John Clark: Most specifically our expectations of a recovery in European industrial and automotive markets are somewhat tempered versus last quarter. As we are seeing little improvement in economic indicators in this region.
John Clark: In summary, 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 over the longer term.
John Clark: Let's turn now to slide 14, I want to spend a few minutes on two exciting investments we are making in our aerospace assets in order to further strengthen our market leadership position.
John Clark: I want to spend a few minutes on two exciting investments we are making in our aerospace assets in order to further strengthen our market leadership position. As you all know by now, our first strategic focus is to grow our value at. The two investments I'm about to discuss do just that in a most exciting segment for us, aerospace. First, as we announced in March, our aerospace and TID facility in Ravenswood, West Virginia, was recently selected by the U.S. Department of Energy to receive an investment of up to 75 million U.S. dollars to deploy low- to zero-carbon technology.
John Clark: As you all know by now our first strategic focus is to grow our value at.
John Clark: The two investments I'm about to discuss too just that most exciting segments for us aerospace.
John Clark: First as we announced in March are aerospace and Tid facility in Ravenswood West Virginia was recently selected by the U S Department of energy to received an investment of up to 75 million U S dollars to deploy low to zero carbon technology.
John Clark: The total size of the project is expected to be around 150 million U.S. dollars, inclusive of the U.S. Department of Energy investment, and it is split 50-50 between maintenance CAPEX and return-seeking CAPEX. In terms of project details, we are looking to replace three legacy casting centers in Ravenswood with two new, modern, state-of-the-art casting centers dedicated to aerospace and TID products. This investment will support the installation of low-emissions, smart-melt furnaces that can operate using a range of fuels, including clean hydrogen, paving the way for zero-carbon cast iron.
John Clark: Total size of the project is expected to be around $150 million inclusive of the U S Department of energy investments and it is split 50 50 between maintenance Capex and return seeking capex.
John Clark: In terms of project details, we're looking to replace three legacy testing centers Raven suit with two new modern state of the art casting centers dedicated for aerospace and <unk> products.
John Clark: This investment will support the installation of low emissions smart Milt pharmacies, let's kind of operates using a range of fuels, including clean hydrogen paving the way towards zero carbon guest house.
John Clark: In addition to reducing carbon emissions. The project is expected to help maximize the recycled scrap intake and equipment efficiency reduce our reliance on external suppliers by increasing our internal slab casting capabilities improve worker safety with introduction of a hands free cash.
John Clark: In addition to reducing carbon emissions, the project is expected to help maximize recycled scrap intake and equipment efficiency, reduce our reliance on external suppliers by increasing our internal slab casting capabilities, improve worker safety with the introduction of a hands-free casting process, and contribute to local communities around Ravensburg.
John Clark: <unk> process and contribute to local communities around ravenswood.
John Clark: In terms of timing the projects will be staged and we expect the first testing center to ramp up in 2026 with a second casting center ramping up in 2028.
John Clark: In terms of timing, the project will be staged, and we expect the first casting center to ramp up in 2026, with the second casting center ramping up in 2028. We are extremely honored and proud to have been selected for this investment, and we express our gratitude to the Department of Energy for the support of Constellium and the aluminum industry. Moving on to the second investment, I'm excited to announce today that we are adding a third casting house at our facility in Issoir, France, dedicated to our airware products.
John Clark: We're extremely honored and proud to have been selected for this investment and we express our gratitude to the department of energy for the support of consortium and the aluminum industry.
John Clark: Moving on to the second investments I am excited to announce today that we are adding a third cast house at our facility in <unk>, France dedicated to our outerwear products.
John Clark: The total size of this investment is close to 40 million euros of return seeking capex plus working capital to get the cast house up and running.
John Clark: The total size of this investment is close to 40 million euros of return-seeking CapEx plus working capital to get the castles up and running. The project is expected to significantly increase our capacity and production of airware products, which will be critical to respond to increased demand in the years to come. Developed through over 20 years of research and development, Airware brings together a unique combination of benefits. It provides low density, strength, thermal stability, corrosion resistance, light weighting, and other attributes.
John Clark: The project is expected to significantly increase our capacity and production of <unk> products, which will be critical to respond to increased demand in the years to come.
John Clark: There is not through over 20 years of research and development and will be brings together a unique combination of benefits. It provides low density strength.
John Clark: Most stability corrosion resistance lightweight king and other attributes.
John Clark: <unk> is already in use today across several major aircraft platforms and space programs and we're excited about the future growth potential for this unique solution in these markets.
John Clark: Airware is already in use today across several major aircraft platforms and space programs, and we are excited about the future growth potential for this unique solution in this market. In terms of timing, we expect to complete the castles by the end of 2025 and to ramp up the castles in 2026 and beyond. As I mentioned, the investment in Ravenswood is split between maintenance and return-seeking CAPEX, while the project in Iswa is return-seeking CAPEX. We expect the return-seeking spending on aerospace investments to well exceed our target IRR of 15%. Also, we expect both projects to be funded without an increase to our overall CAPEX level.
John Clark: In terms of timing, we expect to complete the cast house by the end of 2025 and to ramp up the cast house in 2026 and beyond.
John Clark: As I mentioned the investment in Ravenswood the split between maintenance and return seeking Capex why is the project E is return seeking capex.
John Clark: We expect the return seeking spending on aerospace investments to well exceed all targets IRR of 15% also we expect both projects to be funded without an increase to our overall capex levels.
John Clark: Our energy segment is delivering record performance to date and these investments will create new growth opportunities in 2026 and beyond.
John Clark: Yes.
John Clark: Our Antibes segment is delivering record performance today, and these investments will create new growth opportunities in 2026 and beyond. Turning now to slide 15, we detail our key messages and financial guidance. Our team delivered solid performance in the first quarter of 2024, despite the mixed and market demand environment we faced and the significant weather-related impacts at our mussel shores facility. ENT delivered a record first quarter segment just to the beta.
John Clark: Turning now to slide 15, we detail our key messages and financial guidance.
John Clark: <unk> delivered solid performance in the first quarter of 2020 full despite the mixed end market demand environment, we faced and the significant weather related impacts at all muscle Shoals facility PMT delivered record first quarter segment adjusted EBITDA and importantly, we also launched our share repurchase program in March.
John Clark: As we look ahead like many others, we are continuing to face uncertainties on the macro economy and geopolitical trucks at the stadium, we like our end market position and we are optimistic about our prospects based on our current outlook. We are maintaining our guidance for 2024, we are targeting adjusted EBITDA.
John Clark: And importantly, we also launched our share repurchase program in March. As we look ahead, we are continuing to face uncertainties on the macroeconomic and geopolitical fronts. At Constellium, we like our end-market positioning, and we are optimistic about our prospects. Based on our current outlook, we are maintaining our guidance for 2024. We are targeting adjusted EBITDA, excluding the non-cash impact of the metal price lag, in the range of 740 million to 770 million euros and free cash flow in excess of 130 million euros.
John Clark: Excluding the noncash impact of metal price lag in the range of 740 million to 770 million euros and free cash flow in excess of 130 million euros.
To give some more color on earnings cadence for the year, our guidance assumes secret showed improvements in adjusted EBITDA in the second quarter, though we do expect the second quarter of 2024 to be below the Rico. The record quarter. We achieved last year. This is driven primarily by persisting weakness in European automotive industrial.
John Clark: Fuel specialties end markets as well as scheduled maintenance outages planned in the second quarter this year.
Speaker Change: I also want to reiterate our long term guidance of adjusted EBITDA, excluding the noncash impact of metal price lag in excess of 800 million euros in 2025, and our commitment to maintain our target leverage range of 1515 times to conclude let me say again that I am proud.
John Clark: To give some more color on earnings cadence for the year, our guidance assumes sequential improvements in adjusted EBITDA in the second quarter, though we do expect the second quarter of 2024 to be below the record quarter we achieved last year. This is driven primarily by persisting weakness in European automotive, industrial, and specialties, and markets, as well as scheduled maintenance outages planned for the second quarter this year.
Speaker Change: Our results and very excited about our future. We are extremely well positioned for long term success and we will remain focused on executing our strategy and creating value for our shareholders with that Candice we will now open the Q&A session.
Candice: Thank you if you'd like to register a question. Please press star followed by one on your telephone keypad and Kieran you on mute locally.
John Clark: I also want to reiterate our long-term guidance of adjusted EBITDA excluding the non-cash impact of the metal price lag in excess of 800 million euros in 2025 and our commitment to maintain our target leverage range of 1.5 to 2.5 times. To conclude, let me say again that I'm proud of our results and very excited about our future. We are extremely well positioned for long-term success, and we remain focused on executing our strategy and creating value for our shareholders. With that, Candice, we will now open the Q&A session.
Speaker Change: Would like to withdraw your question at any time, you can do sidebar questions Paulette.
Speaker Change: Our last question comes from the line of Pat with lot of UBS. Your line is now open. Please go ahead.
Pat: Yes. Thank you good morning, Mark and Jack I, just wanted to drill down.
Pat: And some of the moving pieces affecting PARP. It seems like there's kind of a variety of issues going on between some operational challenges at muscle Shoals as well as you highlighted negative mix in the quarter, but when we look at it.
Pat: Your unit profitability year on year or sequential basis, it's pretty significantly depressed relative to I.
Operator: Thank you. If you'd like to submit a question, please press star followed by 1 on your telephone keypad, ensuring you are unmuted locally. If you'd like to withdraw your question at any time, you can do so by pressing star followed by 2. Our first question comes from the line of Kurt Woodworth of UBS. Your line is now open, please go ahead.
Pat: I think broader expectations for mixed benefits you would see in auto and obviously one of the efforts. The company has made to reposition some of the contracts and the can sheet. So.
Speaker Change: Can you kind of get just give us a sense for maybe what.
Speaker Change: What the muscle Shoals kind of headwind was in this quarter and then as you think about <unk> and Park Park can you talk about.
Curtis Rogers Woodworth: Thank you. Good morning, John, Mark, and Jack.
Curtis Rogers Woodworth: I just wanted to drill down on some of the moving pieces affecting PARP. It seems like there's kind of a variety of issues going on between some operational challenges at Marshall Shoals, as well as, you know, you highlighted negative mix in the quarter. But when we look at, you know, your profitability year on year or on a sequential basis, it's pretty significantly depressed relative to, you know, I think broader expectations for, you know, mixed benefits you would see in the auto industry.
Speaker Change: What your margin expectations are.
Speaker Change: How we should think about it going into the remainder of the year.
Speaker Change: Sure Kurt.
Speaker Change: So I'll start and then Mark can help me. So when you look at the park, resulting in the first quarter.
Speaker Change: Mix was favorable and that's because we've had more packaging volume.
Speaker Change: Hum.
Speaker Change: In the proportion of the mix. So that's one thing to keep in mind us mess, we kind of look forward.
Speaker Change: <unk> PARP actually had a substantial amount of impact on the cost side from the muscle shoals, whether you've been in the first quarter, but obviously, that's adverse result compared to.
Curtis Rogers Woodworth: And obviously, a lot of the efforts the company's made to reposition some of the contracts in the canned sheet. So, you know, can you kind of just give us a sense for maybe what the Muscle Shoals kind of headwind was in this quarter? And then, you know, as you think about 2Q and PARP, can you talk about what your margin expectations are and how we should think about them going into the remainder of the year?
Speaker Change: First quarter of last year, So now if we kind of.
Speaker Change: Look forward in terms of margin assumption I mean, this is something we.
Speaker Change: I also mentioned in the past that this business unit with the recovery in packaging and strong automotive it should see margin returning to over $300 a ton we didn't see that in Q1.
Jack Guo: Sure, Kurt. Good morning. So, I'll start, and then John Mark can help me.
Jack Guo: So, when you look at the PARP results in the first quarter, you know, mix was unfavorable, and that's because we had more packaging volume in relative proportion to the mix. So, that's one thing to keep in mind as we kind of look forward. On the cost side, you know, PARP actually had a substantial amount of impact on the cost side from the muscle shows, whether you were in the first quarter, but obviously, that's an adverse result compared to the first quarter of last year.
Speaker Change: To get to the over 300 euro per ton level.
Speaker Change: We're looking at improved performance at muscle Shoals.
Speaker Change: Looking at more recycling benefits.
Speaker Change: And that will be coming that will be helped out by the FTC.
Speaker Change: <unk> investment, there, which is wrapping up.
Speaker Change: Starting the fourth quarter of this year and also with the continued focus on pricing and cost discipline, but.
Speaker Change: If you look at those buckets.
Jack Guo: So, now if we kind of look forward in terms of margin assumption, I mean, this is something we also mentioned in the past that, you know, this business unit, with the recovery in packaging and strong automotive, should see margin returning to over 300 euros per ton. And also, you know, with the continued focus on pricing and cost discipline. But, you know, if you look at those buckets and look at what, you know, the results in the first quarter of 2024 will continue to be a year in transition from a Boston person.
Speaker Change: Okay.
Speaker Change: Starting with the first quarter 2024 will continue to be a year in transition from a margin perspective.
Speaker Change: Okay.
Speaker Change: And then I guess.
Speaker Change: With respect to some of the new Greenfield Mills there.
Speaker Change: Planning to come up until late 'twenty, five 'twenty, six and obviously theres been some delays in at.
Speaker Change: One of the Mills I'm. Just wondering are you seeing any change in kind of your customers looking to come to you to secure any more volume as a potential hedge against delays in some of these projects and then.
Speaker Change: Just given there's been a little slower ramp up in the can sheet market and you talked about industrial whats your confidence level that this capacity.
Curtis Rogers Woodworth: OK. And then I guess, you know, with respect to some of the new greenfield mills that are planning to come up and delay 25 and 26. And obviously, there's been some delays at one of the mills. I'm just wondering, are you seeing any change in the kind of your customers looking to come to you to secure any more volume as a potential hedge against delays in some of these projects? And then, you know, just given there's been a little slower ramp-up in the canned sheep market, you talked about industrial, what's your confidence level that this capacity can be absorbed? And do you have a strategy to try to, you know, extend contract duration within your mix to kind of hedge against potential oversupply?
Speaker Change: Can be absorbed and do you have a strategy to try to.
Extend contract duration.
Speaker Change: Within your mix to kind of hedge against potential oversupply.
Speaker Change: Yes.
Speaker Change: Sure Theres printing your question here so on the.
Speaker Change: Can sheet side.
Speaker Change: As we communicated well sold out through.
Speaker Change: 2007, and nearly 28, so there is not a possibility for us to increase our sales in this period.
Speaker Change: But we do see customers.
Speaker Change: Launching some more possibly as a hedge.
Speaker Change: Against our ramp up.
Speaker Change: Because we are questioning the ramp up of these new mills.
Speaker Change: We are trying hard to meet their needs, but it's extremely difficult because again, we built a very solid position with long term contracts, which we like and that's where we are so I think the capacity to the market to absorb the volumes I think on a macro basis, we've always said there needs to be.
John Clark: Yeah, so there's plenty of your questions here. So on the Tenshi Tsai.
John Clark: As we communicated, we are sold out through 27 and nearly 28. So there is not a possibility for us to increase our sales in this period, but we do see customers, you know, wanting some more, possibly as a hedge against a ramp-up, you know, because they are questioning the ramp-up of these new mills. We're trying hard to meet their needs, but it's extremely difficult because, again, we built a very solid position with long-term contracts, which we like, and that's where we are.
More capacity in.
Speaker Change: In North America. So these two greenfields are needed to meet the needs of the market and can in auto and also specialties, which is more cyclical but also in specialties, where we don't participate ourselves and we're seeing the evidence of it in our discussions with our customers with.
Speaker Change: We are sold out and USC wood.
John Clark: So I think the capacity of the market to absorb the volumes, I think on a macro basis, we've always said there needs to be more capacity in North America. So those two greenfields are needed to meet the needs of the market in cans and in auto, and also specialties, which are more cyclical, but also in specialties where we don't participate ourselves. And we're seeing the evidence of that in our discussions with our customers where, you know, we are sold out, and yes, they would like a bit more if we could make it. So I think that's how I would answer your question.
Speaker Change: Like a bit more if we could make it so.
Speaker Change: I think thats, how I would answer your question.
Speaker Change: Okay.
Speaker Change: Then maybe just lastly on the guidance for <unk> to be down would you expect that to be primarily.
Speaker Change: <unk> around the park segment.
Speaker Change: Then can you give us any kind of magnitude of how much it could be down year on year. So I'll turn it over thank you.
Speaker Change: So we won't go into the specifics here, but just when you look across the business unit.
Curtis Rogers Woodworth: Okay, and then maybe just lastly, on the guidance for 2Q to be down, would you expect that to be primarily functional around the park segment, and then can you give us any kind of magnitude of how much it could be down year on year?
Speaker Change: Our units keep in mind.
Speaker Change: The second quarter for <unk> last year was a record quarter.
Speaker Change: So that's a tough comp on number one.
Jack Guo: I'll turn it over to you. Thank you. So, we're
Speaker Change: And then when you look half volume.
<unk>.
Jack Guo: So, we won't go into the specifics here, Kurt, but just the way you look across the business unit, I mean, units, keep in mind, you know, the second quarter for A&T last year was a record quarter, so that's a tough comp, number one. And then when you look at volume expectations, you know, we do expect the trends we've seen in the first quarter to continue into the second quarter at, you know, PARP and AFNI. And also keep in mind, you know, in the second quarter this year, as we mentioned in the script, we do have some planned outages in preparation for a stronger back half of the year, and that will have some impact on volume.
We do expect.
Speaker Change: The trends we've seen in the first quarter to continue into the second quarter.
Speaker Change: At the PARP in ASI.
Speaker Change: Also keep in mind.
Speaker Change: Sure.
Speaker Change: In the second quarter of this year as we mentioned in the script.
Speaker Change: We do have some planned outages.
Speaker Change: In preparation for a stronger back half of the year.
Speaker Change: And that will have some impact on volume.
Speaker Change: Okay.
Speaker Change: Okay. Thank you.
Operator: The next question comes from the line of Katja. Jancic, your line is open, please go ahead.
Speaker Change: The next question comes from the line of ketchup.
Speaker Change: John.
John: Your line is now open. Please go ahead.
Katja Jancic: Hi, thank you for taking my question. I think you mentioned that you expect to use a large portion of your free cash flow for share buybacks in the second half. Can you talk a bit about what percent of free cash flow you would be comfortable using for share buybacks?
John: Hi, Thank you for taking my questions.
John: I think you mentioned that you expect to use a large portion of your free cash flow for share buybacks in the second half can you talk a bit about what percent of free cash flow yield you would be comfortable in using for share buyback.
Jack Guo: We won't be too precise here, Katja, but thank you for the question. You know, we are expected to generate over 130 million euros of free cash flow, so when we say a large percentage, you can imagine it's more than half, but it's not 100%.
Speaker Change: We won't be too precise here culture, but thank you for the question.
Speaker Change: We are expected to generate over 130 million euros of free cash flow. So when we say a large percentage of you came out and it's more than half, but it's not 100%.
John Clark: Okay, and maybe I missed this, but on the new, yeah, sorry.
Speaker Change: Okay, and maybe I missed this but on the U S. Sorry.
Jack Guo: Katja, good morning. I just wanted to add that we want to stay within our target leverage range, even though we may not be, you know, specific as to, you know, any given quarter, but overall, we want to stay within our target leverage.
Speaker Change: No I would catch it good morning, it's Super market. Just wondering if you had that we wanted to stay within our target leverage range.
Speaker Change: Even though we may not be.
Speaker Change: Specific as to.
Speaker Change: Any given quarter, but overall, we wanted to stay within our target leverage range.
Jack Guo: And just one more point of clarification, Tom, you mentioned about the second half. I don't think we'll be too..., will be quite hands-off, right? So, you know, I think and just leave it with the 10b-5 program, TRIPS execution throughout the year.
Speaker Change: And just one more point of clarification, you mentioned about second half.
Speaker Change: <unk>.
Speaker Change: I don't think it will be too.
Speaker Change: We will be quite hands off right. So I think.
Speaker Change: And just leave it with the.
Speaker Change: The <unk> program trips execution throughout the year.
Katja Jancic: Okay, and then on the new airway cast house, is there a volume increase that you can talk about? I might have missed that.
Okay, and then on the new airway cast house is there a volume increase that you can talk about I might have missed that.
John Clark: Yes, Katja, there is a volume increase. Well, I'm not going to talk about it because it's commercially extremely sensitive. It's a light material, so you will not see a big increase in the tons, but you will see a significant increase in value added for Constellium over time. And that's what is very exciting.
Speaker Change: Yes got you there is a volume increase we are not going to talk about it because it's commercially extremely sensitive it's like materials. So you will not see.
Speaker Change: The big increase in tons, but you will see cigna.
Speaker Change: Significantly increasing the value add for custodial move a time and Thats what is very exciting for us.
Jack Guo: Maybe if I can add one more. Yeah, you can think of these two investments we're talking about as, you know, if you think of the CAPEX dollars to the EBITDA return we're getting out of them, they are the same kind of ratio as what we're observing with the upcoming FT6 in NFPREZAC. So, really attractive investments for us. Perfect for the A&T segment. The EBITDA per ton margin is up year over year, but it was down sequentially.
Speaker Change: Maybe if I can you can think of.
Speaker Change: Yes, you can think of these two investments so we're talking about is.
Speaker Change: Do you think of the Capex dollars to the EBITDA return, we're getting out of them. They all have the same kind of.
Speaker Change: The ratio is what we are observing.
Speaker Change: The upcoming FTC <unk>, so really attractive investments for us.
Speaker Change: Perfect.
Speaker Change: The E&P segment.
Speaker Change: The EBIT per ton margin is up year over year, but it was down sequentially, how should we think about it in the rest of the year.
Jack Guo: So Katja, I wouldn't read too much into the quarterly margin, but I think for the business unit, we have momentum in this business unit with aerospace, right? So the margin will stay high, and it'll stay well above the thousand votes per ton guidance that was provided before.
Speaker Change: Hello, Katja I wouldn't read too much into the quarterly margin.
Katja: But I think for the business units.
Katja: We have momentum in this business unit with aerospace right. So.
Katja: The margin will stay high.
Speaker Change: Stay well above 1000 per ton guidance.
Katja Jancic: Okay, thank you so much.
Speaker Change: Before so long as the long term.
Speaker Change: Okay. Thank you so much.
Speaker Change: Thank you Patrick.
Operator: Your next question comes from the line of Bill Peterson of J.P. Morgan. Your line is now open; please go ahead.
William Chapman Peterson: Your next question comes from the line of scale Peterson of J P. Morgan. Your line is now open. Please go ahead.
William Chapman Peterson: Yeah, hi. Good afternoon. Good morning, John, Mark, and Jack.
William Chapman Peterson: Yes, hi.
William Chapman Peterson: Good morning, John Martin from Jack.
William Chapman Peterson: Kind of taking a higher level view for the full year, you're reiterating your EBITDA guidance. However, given the weaker starting point, you talk about a quarterly improvement, but can you provide a bridge on how we should think about the EBITDA growth for the remainder of the year? Like, what visibility do you have to support the reiteration of guidance? You know, what's in your control and what needs to happen in the various head markets to achieve that, especially in the context of the macro headwinds you spoke to in a pair of remarks. I guess what we're looking for is what's going to be driving the back half step up in profitability.
William Chapman Peterson: Kind of taking a higher level view for the full year, you're reiterating your EBITDA guidance.
William Chapman Peterson: Given the weaker starting point you talk about a quarterly improvement but.
William Chapman Peterson: Can you provide a bridge and how we should think about the EBITDA growth for the remainder of the year like what visibility do you have to support the reiteration of guidance, what's in your control of what needs to happen in the various end markets too.
William Chapman Peterson: To achieve that especially in the context of the macro headwinds you spoke to in the prepared remarks, I guess im looking forward, what's going to be driving the back half step up in profitability.
John Clark: Good morning, Bill. I'll start, and Jack will help me as well.
Speaker Change: Yeah. Good morning, Bill I'll start and the Jetblue that helped me as well so.
John Clark: I think it's important to note that, you know, if you look at can sheet, it's growing again. If you look at automobiles in the U.S., they're extremely strong. It's a little bit disappointing in Europe, but it's extremely strong in the U.S. And aerospace is exceptionally strong for us and continues to show strength. So that's, you know, 70% of our sales that are actually experiencing tailwinds. And we've got quite a bit of visibility because of our long-term contracts.
Speaker Change: I think it's important to note that.
If you look at can sheets its growth growing again, if you look at automotive in the U S. It's extremely strong so a little bit disappointing in Europe, but it's extremely strong in the U S and aerospace.
Speaker Change: Exceptionally strong for us and continues to show strength so thats.
Speaker Change: 70% of our sales that are actually.
Speaker Change: Experiencing tail winds and we've got quite a bit of visibility because of our long term contracts. So we don't know for sure what the second half of the year will be but we've got pretty good visibility. So that's the number one very important element in the backdrop for our guidance for the second element is the weather.
John Clark: So we don't know for sure what the second half of the year will be like, but we've got pretty good visibility. So that's the number one very important element in the backdrop for our guidance. The second element is the weather event, I hate to come back to it, that we experienced in January in Muscle Shoals was extremely significant. That's a significant drag on EBITDA, and the rest of the year, the second half will be back unloaded.
Event I hate to come back to it that we experienced in <unk>.
Speaker Change: In January in muscle Shoals is extremely significant.
Speaker Change: That's a significant drag on EBITDA.
Speaker Change: EBITDA.
Speaker Change: And on costs and on volumes.
John Clark: The second half will be quite strong under the current environment. We are not betting on an improvement in the European industrial outlook, but the strength in the other markets should carry us through the rest of the year. Jack, anything you want to add?
Speaker Change: Obviously, we're not forecasting that to happen again.
Speaker Change: For the remainder of the year. So you take these two elements and you already have a good view into.
Speaker Change: <unk>.
Speaker Change: Into the projection for for the rest of the so it will mean that the.
Speaker Change: Second half will be backend loaded second half will be quite strong.
Speaker Change: And does the current.
Speaker Change: Environment.
Speaker Change: We.
Jack Guo: Jack, anything you want to say?
Speaker Change: I am not betting on any improvement in European industry.
Speaker Change: Rypien industrial outlook.
John Clark: Did I answer your question, Bill? Yeah, no, yeah, thanks for that color.
Speaker Change: But the strengths in the other markets should carry us through the rest of the year Jack.
William Chapman Peterson: Coming back to packaging. And I guess on the multi-year view, I think, you know, you've talked about the need for additional North American capacity and a lot of imports in the market. But I guess the question is, as we look out over a multi-year period with this additional capacity coming online in the US, what happens to the volumes that are being imported? Do you understand?
Speaker Change: Jack anything you want to add.
Speaker Change: Okay.
Jack: Did I answer your question Bill.
Bill: Yes, thanks for that color.
Coming back to packaging.
Bill: On the multi year view I think.
Bill: You've talked about the need for additional north American capacity.
Bill: Obviously, you see a lot of imports in the market.
Bill: The question as we look out over the over a multiyear period with this additional capacity coming online in the U S. What happens to the volumes that are being imported do you see any potential for these imports to compete with your European business in that.
William Chapman Peterson: [inaudible] on that side of the pond, or how should we think about the competitive land? you know, universally within your packaging group. New York, North America. Yeah, so you're right to point out in the U.S. today, the imports are high, abnormally high, and, as you've seen, there are some trade actions that are ongoing and developing, so beyond the fact that they tend to not be very competitive when delivered to customers, in addition, they're likely to face more duties.
Bill: And that in that side of the pond or how should we think about the competitive landscape.
Bill: Universally.
Bill: Within your packaging group with this new North American additions.
Speaker Change: Yeah, So you're right to point out in the U S to do the books are high abnormally high and.
Speaker Change: As you've seen there's some trade actions that are ongoing and developing so beyond the fact that they tend to not be very competitive delivered to customers. In addition, they are likely to face more duty, so where would they go in the future.
William Chapman Peterson: So where would they go in the future? Europe is a possible destination, but you have also to remember that the can sheet is growing, not only cans are growing, not only in America and Europe, but they're growing all over the world. So there is more need for these products. The industrial economies in Asia are also recovering, even though China is a little bit weak these days. There is also significant dynamism in Asia and other regions in the world.
Speaker Change: Europe is is it possible destination, but you have also to remember that can sheet is growing notably.
Speaker Change: Can soar.
Speaker Change: Growing nothing need in America, and Europe, but they're growing over the world. So there is more need for these products industrial economies in Asia are also.
Speaker Change: So recovering even though China is a little bit weak these days.
Speaker Change: There's also significant dynamism in in Asia and other regions in the world. So there is a.
John Clark: So these exports will find other homes. And specifically for us when it comes to Europe, I mean, it's still a fragmented market. It's difficult and more complicated to do business in Europe than it is in North America for somebody who comes in from far away. And we are also seeing some, you know, less naivety, let's say from the Europeans about, you know, competitors dumping products from overseas into the European market. So we don't feel like there is much of a risk. And, finally, it is. It isn't clear to me how... You know, imports from faraway places can be competitive in Europe given the logistics.
Speaker Change: These exports, we will find out the homes.
Speaker Change: And specifically for us when it comes to Europe.
Speaker Change: Still a fragmented market is difficult and.
Speaker Change: And more complicated to do business in Europe than it is in North America for somebody who comes in from the far away and we are seeing also some.
Speaker Change: Less Navy T, let's say from the Europeans about.
Speaker Change: Yeah.
Speaker Change: Competitors dumping from overseas into the European markets.
Speaker Change: We don't feel like there is much of the risk and finally.
Speaker Change: It is.
Speaker Change: It isn't clear to me.
Speaker Change: In thoughts from Faraway places can be competitive in Europe, given the logistics.
William Chapman Peterson: Okay, fair enough. If I can speak for one more moment, you mentioned the AS&I, some price and mix headwinds, but I guess, can you elaborate on that? It sounded like you said the competition.
Speaker Change: Okay fair enough and if I can sneak in one more just you mentioned, some mix and price and mix headwinds.
Speaker Change: But I guess can you elaborate on that you spoke to it sounds like you said the competition I guess I'm wondering what's changed in this market.
William Chapman Peterson: I guess I'm wondering what's changing this market, and maybe more importantly, when can we think that some of the fundamentals will bottom on the industrial side?
Speaker Change: I guess, maybe more importantly, when can we think that some of the fundamentals will bottom in the industrial side.
John Clark: Yeah, so ASNI is the most exposed of our three segments to the European economy because of just the geography, right, to the European economy. All our industry sales are in Europe, and production is in Europe, and a lot of our auto structures business is in Europe. So the geographic mix is weighing quite heavily on SNI's performance, so that's really the main driver.
Speaker Change: Yes, so <unk>.
Speaker Change: Most exposed of our three segments to the European.
Speaker Change: If we could just have the geography right to the European economy, all our industry sales are in Europe and protection is in Europe, and a lot of the structures business is in Europe. So the geography mix is weighing.
Speaker Change: Heavily on.
Speaker Change: On the <unk> performance. So that's really the main driver.
Jack Guo: Yeah, Bill, I would just add, you know, when you look at the bridge for AS&I, you know, the volume headwind and the, you know, the price index, you know, that's a result of lower vehicle sales for the most part in Europe. And that's our performance consistent with the industry, you know, production bill rates in the first quarter and into the second quarter. But that is expected to improve according to, you know, the industry forecast for the second half.
Speaker Change: Yes.
Speaker Change: I'll just add when you look at the bridge for F&I.
Speaker Change: A volume headwind.
Speaker Change: The price index.
Speaker Change: As a result of lower automotive.
Speaker Change: The most part in Europe, and and Thats, our performance consistent with the industry production Bill rates in the first quarter and into the second quarter, but that that is expected to improve.
Speaker Change: According to industry forecasting.
William Chapman Peterson: And finally, just one note again, on the volume side, if you look at our shipments in tons, most, the vast majority of the decline is due to the sale of the German exclusion business which we had in the first quarter. I mean, we had it for the first three quarters of last year, and we sold it. So when you look at the volume level, it looks like a dramatic decline, but it's really because we sold the business.
Speaker Change: And finally, just one note again.
On the volume side, if you look at our shipments in terms most the vast majority of the decline is due to the sale of the German extrusion business, which we had in the first quarter I mean, we added for the first three quarters of last year and we sold it. So when you look at the volume level it looks like a dramatic decline.
Speaker Change: But it's really because we sold the business.
John Clark: Thanks a lot, Jean-Marc and Jeff, for the insight.
Speaker Change: Okay. Thanks, a lot Mark and Jeff for the premium.
William Chapman Peterson: Thank you, Bill. Thank you, Bill.
Thank you Bill Thank you Bill.
Operator: The next question comes from Timna Tanners of Wolf Research. Your line is open, please go ahead.
Speaker Change: The next question comes from Timna.
Timna: Thomas of Wolfe Research. Your line is now open go ahead.
Timna Beth Tanners: Hey, good morning. Thanks for the detail. I wanted to ask, first off, about Muscle Shoals. If I missed it, I apologize, but did you quantify the impact of the heavy snow in the first quarter, and can you discuss a bit more the lingering challenges that you referred to?
Timna Beth Tanners: Yeah, Hey, good morning, thanks for the detail.
Timna Beth Tanners: To ask first off on muscle cells. If you could if I missed them I apologize, but did you quantify the impact of the heavy snow in the first quarter and can you discuss a bit more the lingering challenges that you referred to.
Jack Guo: So maybe I'll start, and I think in terms of the impact, we did not quantify it, but one way to think about it is, you know, if we didn't have the unusual event, weather event, in the first quarter of January, it also shows PARP would have achieved a better performance relative to the first quarter of last year.
Speaker Change: So maybe I'll start and I think in terms of the impact we did not quantify it.
Speaker Change: But one way to think about it is if we didn't have the.
Speaker Change: <unk>, usually been weather event in the first quarter in January at muscle Shoals, PARP would've achieved a better performance of relative to the first quarter of last year.
Timna Beth Tanners: Okay, thanks. And the lingering challenges you mentioned?
Speaker Change: Okay. Thanks, and then lingering challenges you mentioned.
Speaker Change: Yes.
John Clark: Yes, so we have expectations for growth. So I'll backtrack a bit. The markets in North America for can sheet and for automotive are growing.
Speaker Change: We.
Speaker Change: We have expectations for growth so.
Speaker Change: Backtrack a bit the markets in North America for can sheet in <unk>.
John Clark: So over the course of the next several years, and even the past few years, we've been raising our expectations of output from muscle shoals, and we are constantly running a little bit behind. We're making progress, but we're constantly running a bit behind our own expectations. That's reflected in our guidance, by the way. And that's really what we're talking about, right?
Speaker Change: Booties are growing so over the course of the next several years.
Speaker Change: The past few years, we've been raising our expectations of outputs from muscle Shoals, and we are constantly running a little bit behind.
Speaker Change: We're making progress, but we're constantly running a bit behind our own expectations.
Speaker Change: That's reflected in our guidance by the way.
Speaker Change: And Thats really what were talking about rates, so, making some progress but not at the rates at which we're hoping and we continue to be very focused on that.
John Clark: So we're making some progress, but not at the rate at which we were hoping. And we continue to be very focused on improving both the seniority and the knowledge of our teams, and then the reliability of our equipment. It's a daily grind in industrial operations that we continue to be very focused on.
Speaker Change: Improving booths.
Speaker Change: Seniority and the knowledge of our teams and then the reliability of our equipment.
Speaker Change: Daily grinding industrial operations that we continue to be very focused.
Timna Beth Tanners: Okay, got it. And then my other question was just really a higher level question about, you know, the recent announcement by President Biden to vow to add to aluminum tariffs. Obviously, we also know that if Trump is reelected, he would also add to tariffs broadly. So can you remind us how you feel positioned vis-a-vis these potential increases in import tariffs?
Speaker Change: Okay got it and then my other question was just really a higher level question about the recent announcement by President Mike <unk> to add to aluminum tariffs. Obviously, we also know that Amit campus reelected he would also add to tariffs broadly. So can you remind us how you feel position vis.
Speaker Change: <unk> potential increase in import path.
John Clark: Thank you, Tim Knight. So it's a broad question, and tariffs can take all kinds of shapes and forms, and they have different impacts depending on how they're implemented. So, with that said, anti-dumping tariffs are, essentially, good because they focus on, you know, players that don't play by the rules, and they level the playing field. So that's good because it's focused and specific.
Speaker Change: Yes. Thank you two nights. So it's a broad question in tariffs can take all kinds of shapes and forms and we have a different.
Speaker Change: Impacts depending on how they are implemented so with that said.
Speaker Change: The antidumping tariffs.
Speaker Change: Essentially are good because they focus on play.
Speaker Change: Players that don't play by the rules and the level the playing field. So that's good because it's focused in specific.
John Clark: At the other end of the spectrum, you've got the 232 tariffs, for instance, that impose a blanket tariff on anything from southern geographies. What it does is essentially raise the price domestically, but if you start granting exemptions to, uh, you know different players well, then essentially, you've created some competitive advantages for some of these imports. So some imports are at a penalty, some imports are at a competitive disadvantage, and that makes it very murky to interpret how it's gonna impact the industry.
Speaker Change: Other end of the spectrum you could do 232 tariffs for instance.
Speaker Change: A blanket sorry for anything.
Speaker Change: From southern geographies, what he does is essentially raise the price domestically.
Speaker Change: But if you start granting exemptions too.
Speaker Change: Different players will then essentially.
Speaker Change: Essentially you've created some competitive advantage for some of these imports. So some imports are it's a penalty. So we both sorry. It is a competitive disadvantage advantage and that becomes very murky to interpret how it is going to impact the industry.
John Clark: I think the discussion on the 301 tariff, which I think you're alluding to, is in the category of blanket tariffs, so we'll have to see how they're effectively implemented, what circumvention or exemptions there may be, before we can assess how much of a positive impact they will have. It should have some positive impacts, but I'm kind of doubtful it will have a massive impact. I think the other thing that was in the news very recently, I guess it was just the SSA yesterday, was tariffs in Mexico.
Speaker Change: I think the discussion on the 301 tariffs that I think you're alluding to.
Speaker Change: Or in the category of the blankets.
Speaker Change: So we'll have to see how they're effectively implemented what circumvention or exemptions that maybe before we can assess.
Speaker Change: How much of a positive impact.
Speaker Change: It should have some positive impact, but I am kind of doubtful each would have a massive impact I think the other thing that was in the news very recently I guess it was just yesterday.
Speaker Change: Tariffs in Mexico, and that as a potential to be a nice positive for the industry because Mexico has been used as a gateway a circumvention route for imports into North America, so that.
John Clark: And that has the potential to be a nice positive for the industry because Mexico has been used as a gateway, a circumvention route, for imports into North America. So that..., all is being closed apparently, so I think that will have more impact than the 301 announcement by President Biden. But we'll see. These things develop in unsuspected ways at times. So it won't be a negative, but I'm not sure it will be a positive. We'll have to see. I got it.
Speaker Change: All is being <unk>.
Speaker Change: Closed burn pleased too.
Speaker Change: I think that we will have more impact in the 301 and announcements of precision Titan.
Speaker Change: But we will see these things.
Speaker Change: Developing unsuspected ways at times, but it won't be a negative but a material positive we'd have to see.
Speaker Change: Got it okay. Thanks for the help I'll leave it there.
Timna Beth Tanners: Got it. Okay. Thanks for the help. I'll leave it there.
Speaker Change: Okay.
Speaker Change: The next question comes from the line of Josh Sullivan with Benchmark Company. Your line is now open. Please go ahead.
Operator: The next question comes from the line of Josh Sullivan of The Benchmark Company. Your line is now open. Please go ahead.
Joshua Ward Sullivan: Hey, good morning.
Joshua Ward Sullivan: I think Josh with.
Joshua Ward Sullivan: Morning, Josh. With one of your OEM Aerospace customers here announcing a change in narrow body production. Have you seen any change in demand for aerospace plate leading into that announcement? You know, you mentioned plate inventory is still recovering and still strong. You know, there's a thought that suppliers that are delivering at build rates will be paced by those that are catching up, but we'll continue to see some good growth. Can we infer from your comments that you're in that second bucket?
Joshua Ward Sullivan: With one of your.
Joshua Ward Sullivan: OEM aerospace customers here announcing a change in narrow body production.
Joshua Ward Sullivan: Have you seen any change in demand for aerospace plate, leading into that announcement. You mentioned played inventory is still recovering still strong.
Joshua Ward Sullivan: The suppliers that are delivering that build rates will be paced and those that are catching up but we'll continue to see some good growth can.
Joshua Ward Sullivan: Can we infer from your comments youre in that second bucket.
John Clark: Yeah, so we have not seen any impact. I'll remind you that we are much less exposed to this OEM than to the other ones, or ones. So our exposure is very limited. We are not seeing, nor are we anticipating any decrease in demand for our products as a result of this reduction in rate.
Speaker Change: Yes, so we have not seen any impact remind you that we are much less exposed to this OEM then to the other one are ones.
Speaker Change: So our exposure is very.
Speaker Change: Very limited I will not see nor are we anticipating any decrease in demand for our products as a result of this.
Speaker Change: This reduction in rate.
Speaker Change: Got it.
Joshua Ward Sullivan: And then just kind of relatedly, you know, given the negotiations with Boeing, Airbus, and Spirit on the European operations, would any potential change in ownership from Spirit for those Airbus-related assets fall under the Airbus contract? And could that mean any pick-up or changing Constellium content there?
Speaker Change: And then just kind of relatedly, given the negotiations with Boeing and Airbus Spirit on the European operations with any potential change in ownership from spirit for those Airbus related assets fall under the Airbus contract and could that mean any pickup or changing because gallium content there.
John Clark: I don't think so, Josh. I don't think this will have any impact, positive or negative, on us.
Speaker Change: I don't think so Josh.
Speaker Change: I don't think this will have any impact positive or negative on us.
Joshua Ward Sullivan: Okay. And then, just lastly, on that third casting house for airwear, I think you mentioned some more value-added work you're going to be doing there. What does that mean? Is that a new alloy or a vertical move or anything? Can you just expand on that?
Speaker Change: Okay, and then and then just lastly on that third casting house for Air where I think you mentioned some more value added work youre going to be doing there. What does that mean is that a new alloy or a vertical move or anything you could just expand on that.
John Clark: So, airware is now a well-established alloy, a specialty alloy in aerospace applications, and we are seeing increased demand for this alloy and, you know, the products made out of it, right? And these command a very nice price because it's of very high value for our customers, right? The properties that you achieve are extremely interesting in sophisticated applications, especially in space where, you know, weight and cryogenic resistance are super important. So we are seeing now, after many years of development, commercial development in the market, more and more aircraft and more and more platforms in space adopting airware. As a consequence, there is a need for more of that product.
Speaker Change: So where is now.
We're established alloy and specialty alloy aerospace applications.
Speaker Change: We are seeing increased demand for these illinois and the products made out of it out of it right.
Speaker Change: And these command very.
Speaker Change: Nice price because it's very high value for customers trying to properties that you achieve are extremely interesting in sophisticated applications, especially in space, where you wait and the cryogenic resistance are super important. So we are seeing now after many years.
Speaker Change: Development commercial development in the market more and more aircraft and more and more platforms space adopting elsewhere. As a consequence, there is a need for more of that product and that will.
John Clark: And that will be very positive for our A&T segment on the 26th and, you know, for the next ten years of it. If not, there are.
Speaker Change: That will be very positive for our A&D segment in the two.
Speaker Change: <unk> for the next.
Speaker Change: 10 years after that.
Speaker Change: If not there anymore.
Joshua Ward Sullivan: Good to hear. Well, thank you for your time. We're very excited about this investment. Thank you.
Good to hear.
Thank you for the time.
Speaker Change: We're very excited about these investments thank you.
Operator: The next question comes from Sean Wondrack of Deutsche Bank. Your line is now open.
Speaker Change: Okay.
Speaker Change: The next question comes from Sean <unk>.
Sean: Keybanc. Your line is now open. Please go ahead.
Sean Wondrack: Hey guys, congratulations on the ratings upgrade. Well, I'm overdue. Thank you so much. And I appreciate your guidance. It was very thorough here. And when I think about some of your larger cost buckets, like energy costs and labor costs, I guess on the energy side, can you talk about sort of what your assumption is for this year? And just as it relates to labor. Do you have any unions resettling their contracts this year? Is there anything there that could potentially push costs up a little bit?
Sean: Hey, guys.
Sean: Congratulations on the ratings are a long overdue.
Sean: Thank you.
Had a couple of them.
Speaker Change: And I appreciate your guidance.
Speaker Change: Very thorough here.
Speaker Change: I think about some of your larger cost buckets like energy costs and labor costs.
Speaker Change: I guess on the energy side can you talk about sort of what your assumption is for this year.
Speaker Change: And just as it relates to labor.
Speaker Change: Do you have any.
Speaker Change: Onions recycling our contracts sit here or is there anything there that could potentially push costs up a little bit.
Speaker Change: Yes.
Jack Guo: Yep. So, thank you for the question, Sean.
Speaker Change: Yes. So thank you for the question, Sean So I think yes.
Jack Guo: So I think, you know, no is the answer on the labor side when you look at the cost and pressure. You know, we on the energy side specifically, we've said that energy costs have crested in the second half, more specifically in the fourth quarter of last year. And as we mentioned, our hedge cost is at more favorable levels compared to 2023, but, you know, still remaining well above historical averages. But, you know, that could be a tailwind and continue to be a tailwind for us from a cost perspective into the rest of this year.
Speaker Change: No.
Speaker Change: I noticed the answer on the labor side.
Speaker Change: When you look at the cost.
Speaker Change: Pressure.
Speaker Change: On the energy more specifically, we've set the energy cost has crested in the second half more in the fourth quarter of last year and as we mentioned our hedge cost.
Speaker Change: Is that more favorable levels compared to it.
Speaker Change: 'twenty, three but still remain well above historical averages.
Speaker Change: But.
Speaker Change: That will that could be a tailwind continued to be a tailwind for us from a cost perspective into the rest of this year.
Jack Guo: On the other hand, though, labor costs have continued to be high. Remember, labor is the second largest category for costs behind metal. And the inflation there is really locked in for this year, so that can continue.
Speaker Change: On the other handheld labor cost has continued to be high remember labor is the second largest.
Speaker Change: Category for cost behind behind metal.
Speaker Change: And the inflation there is really locked in for that.
Speaker Change: Continue to persevere.
Sean Wondrack: Okay, great. Um, and also, you know, you've pursued a balanced strategy of growing EBITDA and reducing debt on an absolute basis. Clearly, you know, you're several innings into this. Should we expect any permanent debt reductions going forward? Or do you think it'll mostly be through EBITDA growth to the extent you're comfortable? Thank you.
Speaker Change: Okay great.
Speaker Change: And also you've pursued a balanced strategy of growing EBITDA.
Speaker Change: Reducing debt on an absolute basis.
Speaker Change: Clearly youre several <unk> and today should we expect any permanent debt reduction going forward or do you think it will mostly be through EBITDA growth.
Speaker Change: And you're comfortable thank you.
Jack Guo: I think for the most part, we will, I mean, we will naturally deliver. And from a free cash flow perspective, you know, a large portion will be going towards share buyback. But, you know, then we're keeping a little bit to enhance our financial flexibility, but it'll mostly come from natural delivery.
Speaker Change: I think for the most part we will we will naturally delever and from a free cash flow perspective, a large portion of it will be going towards share buyback, but then were keeping a little bit to enhance our financial flexibility.
Speaker Change: Mostly come from natural deleveraging.
Sean Wondrack: Appreciate that. And then the last one from me. As you think about your share repurchase program and, you know, it's likely, you know, you generate more of your cash in fact after a year, and you weigh it against sort of M&A opportunities, is there anything out there, especially in Europe now that we've had a depressed environment for a period of time, that could be attractive to you, either in the near to medium term, or do you think you're just going to continue along with your organic plan of repurchasing shares?
Speaker Change: Right.
Speaker Change: I appreciate that and then the last one for me.
Speaker Change: As you think about your share repurchase program and it's likely you generate cash in back half of the year.
Speaker Change: And you weigh it against sort of M&A opportunities is there anything out there, especially in Europe now that we've had it in the price environment for a period of time that could be attractive to you.
Speaker Change: Either in the near to medium term or do you think you are just kind of continue along with your organic plan of repurchasing shares.
John Clark: Yeah, so we're very committed to the share buyback program. It's number one, and we're very committed to financial discipline and strategic on the M&A side. Wee!
Speaker Change: Yeah, So who are very committed to the share buyback program. This is number one.
Speaker Change: And we're very committed to financial discipline.
And then strategically on the M&A side.
John Clark: If that happens, we'll be highly selective. It has to meet our internal rate of return. It has to allow us to stay within our target leverage, or if there's a change, it must be very quickly rectified and back to target leverage within a year. And it has to be synergistic.
Speaker Change: We.
Speaker Change: If that happens we'll be highly selective it's got to meet our internal rates of return is going to allow us to stay within our target leverage or.
Speaker Change: Okay.
Speaker Change: It must be very quickly rectified and back to target leverage within a year.
Speaker Change: And it's going to be synergistic and finally, we talked about our priority being on recycling, we want to increase our recycling one increase our autonomy vis vis the primary.
John Clark: And finally, we talked about our priority being recycling. We want to increase our recycling. We want to increase our autonomy vis-a-vis the primary producers. That's, you know, why we're doing the investment in France. That's why we're doing the investment in Ravenswood, and we'll continue to do that to increase our recycling capacity organically, and, potentially, there's an attractive acquisition opportunity externally. But again, that's just one tool in the toolbox, and it's got to be employed strategically, selectively, and with respect to the target leverage rate.
Speaker Change: Producers.
Speaker Change: While we are doing the investments in AR.
Speaker Change: In France, that's why we're doing the investments in <unk>.
Speaker Change: And we'll continue to do that to increase our.
Speaker Change: Our recycling capacity organically and potentially there is an attractive.
The acquisition of both GTT externally, but again, that's just one tool in the toolbox and it's going to be employed strategically selectively.
And with respect to the target leverage range.
Sean Wondrack: That's great. Great job this year and last year. I appreciate it all. Thanks very much.
Speaker Change: That's great great job.
Speaker Change: This year and last I appreciate it thank you very much.
Sean Wondrack: Thank you, Sean. Thank you, Shah.
Speaker Change: Thank you Sean Thank you sure.
Operator: As there are no additional questions waiting at this time, I'd like to hand the conference call back over to John-Marc Germain, CEO of Castellia, for closing remarks. Thank you very much.
Speaker Change: Yeah.
Speaker Change: As there are no additional questions at this time I would like to hand, the conference call back over to Joe Marc Germain.
Speaker Change: Australia.
Speaker Change: For closing remarks, thank you very good.
John Clark: Thank you very much, everybody, for listening in today and for your questions, and we look forward to updating you on our progress in a few months. Have a good day, bye-bye.
Speaker Change: Yes. Thank you very much everybody for your for listening in today and for your questions and we look forward to updating you on our progress in a few months well have a good day bye bye.
Operator: Ladies and gentlemen, this concludes today's call. Thank you for joining us.
Speaker Change: Ladies and gentlemen, this concludes today's call.
Operator: You may now disconnect your lines. Okay, bye-bye. Ladies and gentlemen, this concludes today's call.
Speaker Change: Thank you for joining you may now disconnect your line.
Speaker Change: Yeah.
Speaker Change: Bye bye.
Speaker Change: Ladies and gentlemen, this concludes today's call.