Q1 2025 Constellium SE Earnings Call
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Operator: Thank you for joining us.
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Operator: Good morning all, good afternoon all, and welcome to the Constellium first quarter 2025 results call. My name is Adam and I'll be your operator today. If you'd like to ask a question during the Q&A portion of today's call, you may do so by pressing star followed by 1 on your telephone keypad to enter the call.
Good morning, Oh. Good afternoon about continued can study in first quarter 'twenty you talked about scope.
Speaker Change: Nobody ever printed stake if you'd like to ask a question during the Q&A portion of today's call. We can reduce it by pressing star followed by one on your telephone keypad, that's gone into the queue I will now hand over to Jason have Sean Smith director of Investor Relations to begin so Jason. Please go ahead.
Jason Hershiser: I will now hand over to Jason Hershiser, Director of Investor Relations, to begin.
Jason Hershiser: So, Jason, please go ahead. Thank you, Adam.
Jason: Thank you Adam I would like to welcome everyone to our first quarter 2025 earnings call on the call today, we have our Chief Executive Officer, John Mark domain.
Jason Hershiser: I would like to welcome everyone to our first quarter 2025 earnings call. On the call today, we have our Chief Executive Officer, John Mark Germain. and our Chief Financial Officer, Jack Guo.
Speaker Change: Our Chief Financial Officer, Jack well.
Jason Hershiser: After the presentation, we will have a Q&A session. The copy of the slide presentation for today's call is available on our website at concilium.com. Today's call is being recorded.
Jason: The presentation, we will have a Q&A session the.
Jason: A copy of the slide presentation for today's call is available on our website at selling them Dot Com today's call is being recorded.
Jason Hershiser: Before we begin, I'd like to encourage everyone to visit the company's website and take a look at our recent filing.
Jason: Before we begin I'd like to encourage everyone to visit the company's website and take a look at our recent filings.
Jason Hershiser: 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 our factors presented under the heading risk factors in our annual report on Form 10-K.
Jason: This call May include forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095.
Jason: 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.
Jason: 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 our factors presented under the heading risk factors in our annual report on Form 10-K.
Jason Hershiser: All information in this presentation is as of the date of the presentation. We undertake no obligation to update or revise any forward-looking statement as a result of new information, future events, or otherwise, except as required by law.
Jason: All information in this presentation is as of the date of the presentation. We undertakes 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.
Jason Hershiser: In addition, today's presentation includes information regarding certain non-GAAP financial measures. Please see the Reconciliations of Non-GAAP Financial Measures attached in today's slide presentation, which supplement our GAAP disclosure.
Jason: In addition, today's presentation includes information regarding certain non-GAAP financial metrics. Please see the reconciliations of non-GAAP financial measures asked in today's slide presentation, which supplement our GAAP disclosures.
John Mark Germain: And with that, I would now like to hand the call over to John Mark. Thank you, Jason. Good morning, good afternoon, everyone, and thank you for your interest in Constellium. Let's begin on slide five and discuss the highlights from our first quarter results.
Speaker Change: That I would now like to hand, the call over to John Martin.
John Martin: Thank you Jason Good morning, Good afternoon, everyone and thank you for your interest in <unk>.
John Martin: Let's begin on slide five and discuss the highlights from our first quarter results.
John Mark Germain: I would like to start with safety, our number one priority. We delivered strong safety performance in the first quarter with a recordable case rate of 1.02 per million hours worked. Despite this strong achievement, our safety journey is never complete, and we remain focused on priority every day, including achieving our safety target to reduce our recordable case rate to 1.5%. Turning to our financial results, shipments were 372,000 tons, or down 2% compared to the first quarter of 2024, due to higher shipments in PARC that were more than offset by lower shipments in ANT and ASNI. Revenue of $2 billion increased 5% compared to the first quarter of 2024, primarily due to higher metal prices, partially offset by lower shipping.
John Martin: I'd like to start with safety our number one priority we delivered strong safety performance in the first quarter with a recordable case rates of 1.0 to fill median hours works. Despite the strong achievements. Our safety journey is never complete and we will remain focused on these critical priority everyday include.
John Martin: Achieving our safety targets to reduce our recordable case rate to one five this year.
John Martin: Turning to our financial results shipments were 372000 tons of down 2% compared to the first quarter of 2020 full due to higher shipments involved that's where more than offset by lower shipments in <unk> and <unk>.
John Martin: Revenue of $2 billion increased 5% compared to the first quarter of 2024, primarily due to higher metal prices, partially offset by lower shipments remember what our revenues are affected by changes in metal prices, we operate as a pass through business model, which minimize use.
John Mark Germain: Remember, while our revenues are affected by changes in metal prices, we operate a pass-through business model, which minimizes our exposure to metal price risk. Our net income of $38 million in the quarter compares to net income of $22 million in the first quarter last year. Adjusted EBITDA was $186 million in the quarter, although this includes a positive non-cash impact from metal price lag of $46 million. If we exclude the impact of metal price lag, the real economic performance of the business reflects adjusted EBITDA of $140 million in the quarter compared to the $160 million last year when the operating environment was comparatively more favorable.
John Martin: Our exposure to middle price risk.
John Martin: Our net income of $38 million in the quarter compares to net income of $22 million in the first quarter last year with.
John Martin: Adjusted EBITDA was $186 million in the quarter. Although this includes.
John Martin: Positive noncash impact from metal price lag of $46 million.
John Martin: If we exclude the impact of metal price lag the real economy. The performance of the business reflects adjusted EBITDA of $140 million in the quarter.
John Martin: Impaired to the $160 million last year, when the operating environment was comparatively more favorable.
John Mark Germain: The adjusted EBITDA of $140 million this quarter also includes a foreign exchange headwind of $4 million and a negative impact at the Valley of $10 million as a result of the flood last year. Regarding the valet, as of today, the business has resumed normal operations, which is in line with our prior expectations. While this was a very serious incident that impacted our financial performance the last three quarters, our operations in the valet have emerged with a lower cost structure at run rate, and at this time, we're happy to put it into our rear view mirror.
John Martin: The adjusted EBITDA of $140 million. This quarter also includes a foreign exchange headwind of $4 million and a negative impact of the valley.
John Martin: Full of $10 million as a result of the floods last year.
John Martin: Regarding the valley as of today, the business has resumed normal operations, which was in line with our prior expectations. While this was a very serious incidents that impacted our financial performance for the last three quarters. Our operations in the valley have emerged with a lower cost structure at run rates and at this time.
John Martin: Happy to put it into our rearview mirror.
John Mark Germain: I want to thank one more time our entire team on the ground there for their efforts, and incredible results throughout this very difficult time.
I want to thank one more time, our entire team on the ground there for their efforts and incredible results through these very difficult side.
John Mark Germain: Moving now to free cash flow. Our free cash flow in the quarter was negative $3 million and in line with our expectations to start the year. We continue to expect to generate positive free cash flow this year of greater than $120 million. During the quarter, we returned $15 million to shareholders through the repurchase of 1.4 million shares. Our leverage at the end of the first quarter was 3.3 times, though we expect this to trend down by the end of the year. We delivered solid results this quarter, which were slightly ahead of our expectations, despite a very challenging environment, including demand weakness across most of our end markets, outside of Pakistan.
John Martin: Moving now to free cash flow, our free cash flow in the quarter was negative $3 million and in line with our expectations to start the year. We continue to expect to generate positive free cash flow this year of greater than $120 million.
John Martin: During the quarter, we returned $15 million to shareholders through the repurchase of one 4 million shares our leverage at the end of the first quarter was three three times do we expect this to trend down by the end of the year.
John Martin: We delivered solid results this quarter, which was slightly ahead of our expectations. Despite a very challenging environments, including demand weakness across most of our end markets outside effects.
John Mark Germain: remain focused on strong cost control, free cash flow generation, and commercial and capital disincentives. Overall, I am quite happy with our first quarter performance.
John Martin: We remain focused on strong cost control free cash flow generation and commercial and capital discipline overall.
John Martin: Overall, I am quite happy with our first quarter performance.
John Mark Germain: Please now turn to slide 6.
John Martin: Please now turn to slide six.
John Mark Germain: Before turning the call over to Jack, I wanted to give a quick update on the Section 232 tariffs, as well as other tariffs under IEPA, and how we see the potential impact to Constelio. Before going into details on the slide, let me summarize a bit. The tariff situation is a fluid and multifaceted situation. We see both some positive and negative impacts on our business. And at this stage, we believe it presents us with various opportunities as well as some additional costs. The guidance we are giving today does include the direct impact from tariffs that we are able to estimate, given what we know today, and it does include several mitigating factors we have identified to offset the impact.
Speaker Change: Before turning the call over to Jack I wanted to give a quick update on the section 203 to tariffs as well as other theories under IEP and how we see the potential impact to <unk>.
John Martin: Before going into details on this slide let me summarize a bit.
John Martin: The tariff situation is fluid and multifaceted situation, we see both.
John Martin: <unk> and negative impacts on our business and at this stage, we believe it's presents us with various opportunities as well as some additional costs. The guidance. We are giving today does include the direct impacts from tariffs, that's who are able to estimate given what we know today and it does include several mitigating factors whereby.
John Martin: <unk> side to offset the impacts. It also includes our current assumptions on end market demand in the current environment.
John Mark Germain: It also includes our current assumptions on end market demand in the current environment.
John Mark Germain: Our guidance assumes a relatively stable microenvironment, and it does not include potential impacts from additional tariff. Shifting to details of the slide now. On the production side, we are mostly local for local in the regions we operate. Our automotive structure business in the U.S. buys extrusion from Canada, including from our joint venture in Canada. These extrusions have become more expensive under Section 232 tariffs, which impacted the first quarter by over $1 million. The costs will continue to accumulate going forward, and we expect around $20 million for the rest of the year before mitigating items. We are working with our customers on pass-throughs and have made good progress on a number of them.
John Martin: Our guidance assumes a relatively stable macro environment and it does not include potential impacts from additional tariffs.
John Martin: Shifting to the details of the slide now on the production side will mostly local for local in the regions we operate utilities.
John Martin: Utility structure business in the U S buys extrusion from Canada, including from our joint venture in Canada. These extrusion have become more expensive under section 232, tariffs, which impacted the first quarter by over $1 million the costs will continue to accumulate.
John Martin: Full world and we expect around $20 million for the rest of the year before mitigating items.
John Martin: We are working with our customers on pass throughs and have made good progress on a number of them and we will continue to work on pass throughs and other actions to mitigate the impact on our results.
John Mark Germain: And we will continue to work on pass-throughs and other actions to mitigate the impact on our resources. In aerospace, we ship small quantities from Europe to the U.S. to serve global OEMs, although this has a pass-through today and will not be impacted. Regarding the automotive specific tariffs that fall under Section 232, the volumes we ship across Mexican and Canadian borders are compliant with USFDA. On the metal supply side, we import some primary aluminum from Canada, given the lack of smelter capacity in the U.S. As of today, we have commercial agreements in place to help mitigate the tariff impact on this metal.
John Martin: In aerospace we ship small quantities from Europe to the U S to serve global Oems. Although this is a pass through today and will not be impacted.
John Martin: Regarding the automotive specific Terry set full under section 232, the volumes, we ship across Mexican and Canadian boulders are compliance with U S. MCA.
John Martin: On the metal supply side, we invoked some primary aluminum from Canada, given the lack of smelter capacity in the U S.
As of today, we have commercial agreements in place to help mitigate the tariff impact from this metal.
John Mark Germain: In terms of scrap, aluminum scrap is excluded from the current scope of Section 232 tariffs, and we purchase most of our scrap needs from dealers in the U.S. The impact on scrap from tariffs should be a net positive, as a rise in the US regional premium is beneficial for the domestic supply chain. We are starting to see this already as crop spreads for used beverage cans in the U.S., for instance, started to widen in the latter part of these first crops. In terms of commercial impacts, these two should be a net positive for Constellium. Today, around 1 million tons of flat rolled aluminum imports are coming into the U.S.
John Martin: In terms of scrap aluminum scrap is excluded from the current scope of section 203 to tariffs and we purchased most of our scrap needs from dealers in the U S.
John Martin: The impact on scrap from Terry should be a net positive as the rise in the U S. Regional premium is beneficial for the domestic supply chain.
John Martin: We are starting to see this already.
John Martin: <unk> spreads for used beverage cans in the U S. For instance started to widen in the latter part of this first quarter.
John Martin: In terms of commercial impacts these two should be a net positive focal stadium today around 1 million tons of flat rolled aluminum imports are coming into the U S.
John Mark Germain: Tariffs will make domestically produced products more competitive, and we should benefit from this. As we mentioned last quarter, we announced a price increase for all flat-roll products shipped in the U.S., and this is creating benefits for us on non-contracted volumes starting in the second quarter of this year.
John Martin: <unk> will make domestically produced products more competitive and we should benefit from this as.
John Martin: As we mentioned last quarter, we announced the price increase for all flat rolled products shipped in the U S. And this is creating benefits for us on non contracted volumes starting in the second quarter of this year.
John Mark Germain: In terms of end markets, the tariff and trade situation is creating broader macro uncertainty and is having a negative impact on markets such as automotive. Our guidance had already assumed weak conditions in automotive in both North America and Europe, and we are monitoring the conditions very closely. That said, we are not discounting the broader macro uncertainty. We have accelerated our cost reduction efforts under our Vision 25 program, and we are optimizing our existing capacity, depending on market conditions, such as shifting subcapacity where we can from automotive markets into packaging markets, for instance.
John Martin: In terms of end markets, the tariff and trade situation is creating broader macro uncertainty and he's having a negative impact in markets such as automotive.
John Martin: Our guidance had already assumed weak conditions in automotive in both North America, and Europe, and we are monitoring the conditions very closely.
John Martin: That said, we are not discounting the broader macro uncertainty we have accelerated our cost reduction efforts under our vision 25 program and we are optimizing our existing capacity depending on market conditions, such as shifting some capacity, where we can from automotive markets into packaging markets.
John Mark Germain: To close out on tariffs, as I said before, the situation remains very fluid. We are continually monitoring and assessing the potential impact of current and future trade policies, though at this stage we believe the tariff on aluminum, net-net, presents us with some opportunities in the current environment.
John Martin: Understood.
John Martin: To close out on the tariffs as I said before the situation remains very fluid, we're continually monitoring and assessing the potential impact of current and future of trade policies a.
John Martin: At this stage, we believe the tariff on aluminum net net presents us with silver opportunities in the current environment with.
Jack Guo: With that, I will now hand the call over to Jack for further details on our financial performance. Jack? Thank you, Jamar, and thank you, everyone, for joining the call today.
John Martin: With that I will now hand, the call over to Jack for further details on our financial performance Jack Thank you.
Jean Marc: Jean Marc and thank you everyone for joining our call today. Please.
Jack Guo: Please turn now to slide 8, and let's focus on our ANT segment performance. A just-debited $75 million decrease of 14% compared to the first quarter last year. volume was a headwind of $20 million due to lower aerospace and TID Aerospace shipments were down 11% in the quarter versus last year as commercial OEMs continue to work to access inventory as a result of continued supply chain challenges. Demand in business and regional Space and Military Aircraft remained healthy. TID shipments were down 7% compared to last year as commercial, transportation, and general industrial markets remained weak in the quarter.
Speaker Change: Please turn now to slide eight let's focus our A&P segment performance.
Jean Marc: Adjusted EBITDA of $75 million decrease of 14% compared to the first quarter last year.
Jean Marc: <unk> was a headwind of $20 million due to lower aerospace at Tid shipments.
Jean Marc: Aerospace shipments were down 11% in the quarter versus last year as commercial Oems continued to work through excess inventory as a result of continued supply chain challenges.
Jean Marc: Demand in business and regional Jets space and military aircraft remained healthy.
Jean Marc: Tid shipments were down 7%.
Jean Marc: Compared to last year as commercial transportation and general industrial markets remained weak in the quarter.
Jack Guo: TID shipments were also impacted at L.A. as a result of the flood from last year. Price and mix was a headwind of $16 million due to a softer pricing environment in PID and weaker overall mix in the quarter.
Jean Marc: Tid shipments were also impacted <unk> as a result of the flood from last year.
Jean Marc: Price and mix was a headwind of $16 million due to a softer pricing environment in tid and weaker overall mixing in the quarter.
Jack Guo: costs were a tailwind of $25 million primarily as a result of lower operating Now, turn to slide 9, and let's focus on our part segment performance. Adjusted EBITDA of $60 million increased 25% compared to the first quarter last year. Volume was a tailwind of $4 million as higher shipments in packaging were partially offset by lower shipments in automotive and special Packaging shipments increased 9% in the quarter versus last year as demand remained healthy in both North America and Europe. In North America, we also benefited at Muscle Shoals from improved operational performance in the quarter this year and the non-repeat of the weather event from last year.
Jean Marc: Costs were a tailwind of $25 million, primarily as a result of lower operating costs.
Jean Marc: Now, let's turn to slide nine let's focus on our part segment performance.
Jean Marc: Adjusted EBITDA of $60 million increased 25% compared to the first quarter last year.
Jean Marc: Volume was a tailwind of $4 million as higher shipments and packaging were partially offset by lower shipments in automotive and specialties.
Jean Marc: Packaging shipments increased 9% in the quarter versus last year as demand remained healthy in both North America and Europe.
Jean Marc: In North America, we also benefited at muscle Shoals from improved operational performance in the quarter this year and the non repeat of the weather event from last year.
Jack Guo: Automotive shipments decreased 15% in the quarter with weakness in both North America and Europe. Price and mix was a tailwind of $9 million, mainly as a result of improved pricing in the quarter. costs were a tailwind of $2 million as a result of lower operating costs and more favorable metal costs in Nuprizac, mostly offset by unfavorable metal costs in Muscle Shoals given tighter scrap spreads in North America.
Jean Marc: Automotive shipments decreased 15% in the quarter with weakness in both North America and Europe.
Jean Marc: Price and mix was a tailwind of $9 billion.
Jean Marc: Mainly as a result of improved pricing in the quarter.
Jean Marc: Costs were a tailwind up $2 million as a result of lower operating costs and more favorable metal costs enough for Zach, mostly offset by unfavorable metal, causing muscle shoals, given tighter scrap spreads in North America.
Jack Guo: FX and Other was a headwind of $3 million in the quarter.
Jean Marc: FX and other was a headwind of $3 million in the quarter.
Jack Guo: Now turn to slide 10.
Jack Guo: Let's focus on the AS&I section. adjusted VDOT of $16 million decreased 50% compared to the first quarter of last year. Volume was a $12 million headwind as a result of lower shipments in automotive and industry to the product. Automotive shipments were down 14% in the quarter with weakness in both North America and Europe. Industry shipments were down 4% in the quarter versus last year as weakness persisted in Europe. Industry shipments were also impacted at Ballet as a result of the flood from last year. Price and mix was a $2 million headwind in the quarter while costs were a headwind of $1 million.
Jean Marc: Now, let's turn to slide 10, let's focus on the F&I segment.
Jean Marc: Adjusted EBITDA.
Jean Marc: $16 million decreased 50% compared to the first quarter of last year.
Jean Marc: Volume was a $12 million headwind as a result of lower shipments the automotive and industry shoot of products.
Jean Marc: Automotive shipments were down 14% in the quarter with weakness in both North America and Europe.
Jean Marc: Industry shipments were down 4% in the quarter versus last year as weakness persisted in Europe.
Jean Marc: Industry shipments were also impacted at outlay as a result of the flush from last year.
Jean Marc: Price and mix was a $2 million headwind in the quarter, while costs were a headwind of $1 million.
Jack Guo: It is not on the slide here, but our holdings and corporate expense was $11 million in the quarter and within our expectation. Holdings and corporate expense this quarter was up $4 million from last year, mainly due to additional IT spending with the upgrade of our ERP system, as we previously discussed, and some minor one-off items. As we said last quarter, we expect holdings and corporate expense to run at approximately $40 million in 2025.
Jean Marc: It is not on the slide here, but our holdings, Inc. Corporate expense was $11 million in the quarter and within our expectation.
Jean Marc: Holdings and corporate expense this quarter was up $4 million from last year, mainly due to additional spending with the upgrade of our ERP system as we previously discussed and some minor one off items.
Jean Marc: As we said last quarter, we expect holdings at corporate expense to run at approximately $40 million in 2025.
Jack Guo: It is also not on the slide here, but I wanted to summarize the current cost environment we're facing. As you know, we operate a pass-through business model, so we're not materially exposed to changes in the market price of aluminum, our largest cost input. On other metal costs, we experienced a dramatic tightening of scrap spreads in North America in 2024, which continued as we started the year this year. Scrap spreads in the spot market did improve modestly by the end of the quarter, though our scrap needs through the first half of this year have been contracted at comparatively higher scrap spread levels.
Jean Marc: It is also not on the slide here, but I wanted to summarize the current cost environment, we're facing.
Jean Marc: As you know we operate a pass through business model. So we're darn materially exposed to changes in the market price of aluminum our largest cost input.
Jean Marc: Other metal costs, we experienced a dramatic tightening of scrap spreads in North America in 2024, which continued as we started the year this year.
Jean Marc: Scrap spreads in the spot market did improve modestly by the end of the quarter, though our scrap needs through the first half of this year have been contracted at comparatively higher scrap scrap spread levels.
Jack Guo: We expect scrap metal costs to remain a headwind for the remainder of the year relative to historical levels, though progressively to a lesser extent. For energy, our 2025 costs are moderately more favorable compared to 2024, although energy prices remain above historical average. Other inflationary pressures have eased to more normal levels.
Jean Marc: We expect scrap metal costs to remain a headwind for the remainder of the year relative to historical levels. The progressive play to a lesser extent.
Jean Marc: For energy, our 2025 costs are moderately more favorable compared to 2024, although energy prices remain above historical averages.
Jean Marc: Other inflationary pressures have eased to more normal levels.
Jack Guo: And as we said last quarter, Given the weakness we're seeing in several of our markets, we have accelerated our Vision 25 Cost Improvement Program with measures such as improving operational efficiency. Reducing headcounts and other labor costs, reducing nonmetal procurement spending. optimizing maintenance costs by minimizing the use of outside contractors and cost reduction efforts across many other categories. We have demonstrated strong cost performance in the past years and we're confident in our ability to right-size our cost structure for the current demand environment. You see some of the benefits in our first quarter results, and the run rate benefit should be even more.
Jean Marc: And as we set last quarter.
Jean Marc: Given the weakness we're seeing in several of our markets. We have accelerated our ambition twenty-five cost improvement program with measures such as improving operational efficiency, reducing head counts at other labor costs.
Jean Marc: Reducing nonmetal procurement spending.
Jean Marc: <unk> maintenance costs by minimizing the use of outside contractors and cost reduction efforts across many other categories.
Jean Marc: We have demonstrated strong cost performance in the in the past years, and we're confident in our ability to rightsize our cost structure for the current demand environment.
Jean Marc: You see some of the benefits in our first quarter results and the run rate benefit should be even more.
Jack Guo: Now, let's turn to slide 11 and discuss our free cash flow. Free cash flow was negative $3 million in the first quarter and in line with our expectations, though this includes a negative $27 million impact at that late as the business continued to recover from the flood, including capital expenditures and the need to rebuild some working capital. This also excludes $2 million of cash we received from the collection of Deferred Purchase Price Receivables which is a result of our conversion from IFRS to US GAAP and the corresponding accounting treatment of some of our factoring and accounting treatment of some of our factoring and As we mentioned last quarter, we amended these arrangements earlier this quarter, and all cash received under the arrangements since then are recorded in operating cash.
Jean Marc: Now, let's turn to slide 11, and discuss our free cash flow.
Jean Marc: Free cash flow was negative $3 million in the first quarter and in line with our expectations. Though this includes a negative $27 million impact that that way as the business continued to recover from the flood, including capital expenditures and the need to rebuild some working capital.
Jean Marc: This also excludes $2 million of cash we received from the collection of deferred purchase price receivables, which is a result of our conversion from <unk> to U S. GAAP and the corresponding account accounting treatment of some of our factoring arrangement.
Jean Marc: As we mentioned last quarter.
Jean Marc: We amended these arrangements earlier this quarter and all cash received under the arrangement. Since then are recorded in operating cash flows.
Jack Guo: Free cash flow, excluding the impact of outlay and including the cash received for collection of deferred purchase price receivables, would have been positive $26 million in the first quarter, which benefited from the actions we took in the latter part of last year to reduce working capital in this current demand environment. Looking at 2025, we expect to generate free cash flow in excess of $120 million for the full year, which is unchanged from our prior guidance.
Jean Marc: Free cash flow, excluding the impact of outlay and including the cash received for collection of deferred purchase price receivables would have been positive $26 million in the first quarter, which benefited from the actions. We took in the latter part of last year to reduce working capital in this curve.
Jean Marc: Current demand environment.
Jean Marc: Looking at 2025, we expect to generate free cash flow in excess of $120 million for the full year.
Jack Guo: Given the uncertainty with the overall environment, we're looking at modestly reducing our CapEx this year by about 5% to 10% to stay prudent and stay ahead. For the other cash flow items, we continue to expect them to be at around the same levels as per the previous guidance.
Jean Marc: Is unchanged from our prior guidance.
Given the uncertainty with the overall environment we're.
Jean Marc: We're looking at modestly reducing our capex this year by about 5% to 10% to stay prudent.
Jean Marc: <unk> ahead.
Jean Marc: For the other cash flow items, we continue to expect them to be at around the same level as per the previous guidance.
Jack Guo: As Jean-Marc mentioned previously, we continued our shared buybacks activities in the quarter. During the quarter, we repurchased 1.4 million shares for $50 million. We have approximately $206 million dollars remaining in our existing share purchase program and we intend to use a large portion of the free cash flow generated this year for the program.
Mark: As Mark mentioned previously.
Mark: We continued our share buyback activities in the quarter.
Mark: During the quarter, we repurchased one 4 million shares for $50 million.
Mark: Approximately $206 million remaining our existing share repurchase program and we intend to use a large portion of the free cash flow generated this year for the program.
Jack Guo: Now let's turn to slide 12 and discuss our balance sheet on liquidity. At the end of the first quarter, our net debt of $1.8 billion was up $50 million compared to the end of 2024, with the largest driver being the translation impact from the weaker U.S. dollar at the end of the quarter. Our leverage was 3.3 times at the end of the quarter, or up 0.2 times versus the end of 2024.
Mark: Now, let's turn to slide 12, and discuss our balance sheet our liquidity position.
Mark: At the end of the first quarter, our net debt of $1 8 billion was up $50 million compared to the end of 2024 with the largest driver being the translation impact from the weaker U S. Dollar at the end of the quarter.
Mark: Our leverage was three three times at the end of the quarter were up two times versus the end of 2024.
Jack Guo: As Jean-Marc mentioned previously, we expect this to trend down by the end of the year. We're committed to bringing our leverage back down into our target leverage range of 1.5 to 2.5 times and maintaining this range over time.
Speaker Change: As John Mark mentioned previously we expect this to trend down by the end of the year, we're committed to bringing our leverage back down into our target leverage range of one five to two two and half times and maintaining this range overtime.
Jack Guo: As you can see our debt summary, we have no bond maturities until 2028, and our liquidity increased by $73 million from the end of 2024 and remains strong at $800 million as of the end of the first quarter.
Speaker Change: As you can see our debt summary, we have no bond maturities until 2028, and our liquidity increased by $73 million.
Speaker Change: From the end of 2024 and remains strong at $800 million as of the end of the first quarter.
John Mark Germain: With that, I'll now hand the call back to Jean-Marc.
John Mark Germain: Thank you, Jack. Let's jump to slide 14 and discuss our current and market outcomes. The majority of our portfolio today is serving end markets benefiting from durable, sustainability-driven secular growth in which aluminum, a light and infinitely recyclable material, plays a critical role. However, many of these markets continue to face demand headwinds today and are also now facing uncertainty given the tariff situation.
Speaker Change: With that I will now hand, the call back to John Marc. Thank you, Jack Let's turn to slide 14, and discuss our current end markets out.
Speaker Change: The majority of our portfolio today, serving end markets benefiting from durable sustainability, driven secular growth, which aluminum light and infinity recyclable material plays a critical role.
Speaker Change: However, many of these markets continue to face demand headwinds today and also now fishing uncertainty given the tariff situation.
John Mark Germain: turning first to the aerospace market. Commercial aircraft backloads are robust today and continue to grow. Major aero OEMs remain focused on increasing build rates for both narrow and wide-body aircraft, though supply chain challenges continue to slow deliveries. As a result, aerospace supply chains need to adjust to lower-than-expected build rates, which is causing a shift in demand to the right for some of our products. Despite the slowdown in the near term, demand has stabilized for the most part and we remain confident that long-term fundamentals driving aerospace demand remain intact, including growing passenger traffic and greater demand for new, more fuel-efficient aircraft.
Speaker Change: Turning first to the aerospace market.
Speaker Change: Commercial aircraft backlog saw robust today and continues to grow.
Speaker Change: A major Aero Oems remained focused on increasing build rates for both narrow and wide body aircraft. Those supply chain challenges continued to slow deliveries as a result, aerospace supply chains need to adjust to lower than expected build rates, which is causing a shift in demand to the rights will somewhat.
Speaker Change: Our products.
Speaker Change: Despite the slowdown in the near term demand has stabilized for the most vaults and we remain confident that long term fundamentals driving aerospace demand remain intact, including growing passenger traffic and greater demand for new more fuel efficient aircraft.
John Mark Germain: Demand remains stable in the business and regional jet market and healthy for space and military aircraft.
Speaker Change: Demand remains stable in the business and regional jet market and healthy fill space and military aircraft.
John Mark Germain: Turning now to PAX. The domain remains healthy in both North America and Europe. 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. Longer term, we continue to expect packaging markets to grow low to mid-single digits in both North America and Europe.
Speaker Change: Turning now to packaging demand remains healthy in both North America and Europe. 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 booths regions and the.
Speaker Change: The investments ongoing here in North America.
Speaker Change: Longer term, we continue to expect factory markets to grow low to mid single digits in both North America and Europe.
John Mark Germain: Let's turn now to automotive. Automotive OEM production of flight vehicles in Europe remains well below pre-COVID levels and is still below pre-COVID levels in North America as well. Demand in North America has continued to soften in the near term and is expected to feel the impact of the current Section 232 auto tariffs. Demand in Europe remains weak, particularly in the luxury and premium vehicle and electric vehicle segments where we have greater exposure. Automotive production in Europe is also expected to feel the impact of the current Section 232 auto tariffs, given the amount of vehicles the US imports from Europe.
Speaker Change: Let's go now to automotive automotive OEM production of light vehicles in Europe remains well below pre COVID-19 levels and is still below pre COVID-19 levels in North America as well.
Demand in North America has continued to soften in the near term and is expected to feel the impact of the current section 232 auto tariffs.
Speaker Change: Demand in Europe remains weak, particularly in the luxury and premium vehicle and electric vehicle segments, where we have greater exposure.
Speaker Change: Automotive production in Europe is also expected to feel the impacts of the current section two <unk> to <unk> given the amount of vehicles to U S imports from Europe.
John Mark Germain: In the long term, we believe electric and hybrid vehicles will continue to grow, but at a lower rate than previously expected. Sustainability trends, such as lightweighting and increased fuel efficiency, will continue to drive demand for aluminum products. As a result, we remain positive on this market over the longer term in both regions, despite the weakness we are seeing today. As you can see on the page, these three core end markets represent over 80% of our last 12 months revenue.
Speaker Change: In the long term, we believe electric and hybrid vehicles will continue to grow but at a lower rate than previously expected.
Speaker Change: Sustainability trends, such as light weighting and increased fuel efficiency will continue to drive the demand for aluminum products. As a result, we remain positive in these markets over the longer term I mean booths regions. Despite the weakness we are seeing today.
Speaker Change: As you can see on the page. These three core end markets represent over 80% of our last 12 months' revenues.
John Mark Germain: turning lastly to other special. In North America, demand appears to have stabilized, albeit at low levels, and demand remains weak in Europe. We have experienced weakness across most specialty markets for more than two years now, though we are beginning to see some green shoots in certain TID markets in North America. We also believe TID markets in North America provide us with some opportunities today, given the current tariffs make imports less competitive compared to domestic products. As a reminder, these specialties markets are typically dependent upon the health of the industrial economies in each region, including drivers like the interest rate environment, industrial production levels, and consumer spending patterns.
Speaker Change: Turning lastly to other specialties.
Speaker Change: North America demand appears to have stabilized, albeit at low levels and demand remains weak in Europe, where we experienced weakness across most specialty market for more than two years now, though we are beginning to see some green shoots in certain tid markets in North America.
Speaker Change: Also believes tid markets in North America provide us with some opportunities today, given the current tariffs make imports less competitive compared to domestic production.
Speaker Change: As a reminder, these specialties markets of typically dependent upon the health of the industrial economies in each region, including drivers like the interest rates environments industrial production levels and consumer spending patterns. We continue to work hard to adjust our cost structure to the current demand environment.
John Mark Germain: We continue to work hard to adjust our cost structure to the current demand environment, which will put the businesses in an even better position when the industrial economies do recover. To conclude on the end market, we like the fundamentals in each of the markets we serve, and we strongly believe that the diversification of our end markets is an asset for the company in any environment and that the current conditions will pass.
Speaker Change: <unk>, which will put the businesses and an even better position when the industrial economies do recover.
Speaker Change: To conclude on the end markets, we like the fundamentals in each of the markets. We serve and we strongly believe that the diversification of our end markets as an asset for the company in any environment and that the current conditions will packs.
John Mark Germain: Turning lastly to slide 16, we detail our key messages and financial guidance. Our team delivered solid results in the first quarter this year, despite continued demand weakness across most of our end markets and the lingering financial impact of the value flow. who returned $15 million to shareholders in the quarter with a repurchase of $1.4 million. While tariffs are creating broader macro uncertainty and impacting end markets like automotive, we are proactively managing our business to the current environment. We remain focused on strong cost control, free cash flow generation, and commercial and cattle distribution. Based on our current outlook, including the current end-market conditions I just described, and assuming a relatively stable macro environment, we are maintaining our guidance for 2025.
Speaker Change: Turning lastly to slide 16, we detail our key messages and financial guidance. Our team delivered solid results in the first quarter. This year. Despite continued demand weakness across most of our end markets and the lingering financial impact of the valley flowed.
Speaker Change: We returned $15 million to shareholders in the quarter with the repurchase of one 4 million shares.
Speaker Change: Well as Terry saw creating broader macro uncertainty impacting end markets like automotive we are proactively managing our business to the current environment. We remain focused on strong cost control free cash flow generation and commercial and casual disappeared.
Speaker Change: Based on our current outlook, including the current end market conditions I, just described and assuming a relatively stable macro environment, while maintaining our guidance for 2025, we are targeting adjusted EBITDA, excluding the non cash impact of metal price lag in the range of 600 million to $630 million.
John Mark Germain: We are targeting adjusted EBITDA, excluding the non-cash impact of metal price lag, in the range of $600 million to $630 million, and free cash flow in excess of $120 million. I also want to reiterate our long-term targets of adjusted EBITDA, excluding the non-cash impact of metal price lag, of $900 million, and free cash flow of $300 million in 2028.
Speaker Change: Free cash flow in excess of $120 million.
Speaker Change: I also want to reiterate our long term targets of adjusted EBITDA, excluding the non cash impact of metal price lag of $900 million and free cash flow of $300 million in 2028.
John Mark Germain: To conclude, while we continue to face challenging conditions in most of our markets today, we believe that this will pass, and I remain very excited about our future and the ability to seize the many opportunities in front of us, which we have demonstrated in the past. who are extremely well-positioned for long-term success and remain focused on executing our strategy and shareholder value creation.
Speaker Change: To conclude while we continue to face challenging conditions in most of our markets. Today. We believe that this will pass and I remain very excited about our future and the ability to seize the many opportunities in front of us, which we have demonstrated in the past.
Speaker Change: We're extremely well positioned for long term success and remain focused on executing our strategy and shareholder value creation.
Operator: With that, Adam, we will now open the Q&A session, please. As a reminder, if you'd like to ask a question on today's call, please press star followed by 1 on your telephone keypad now. When prepared to ask a question, please ensure your headset is fully plugged in and unmuted locally.
Adam: Adam We will now open the Q&A session. Please.
Speaker Change: Of course as a remote.
Speaker Change: If you'd like to ask a question on todays call. Please press star followed by one telephone keypad announcements to queue.
Katja Jancic: And our first question comes from Katja Jancic from BMO Capital Markets. Please go ahead. Hi. Thank you for taking my questions. Maybe starting off, Jean-Marc, you mentioned that first quarter was ahead of expectations. Can you talk a bit more about what drove that? Yes, good morning, Katja. Thanks for the question. So I think we have seen good performance at our mussel shores plant and we continue to make progress. So that has helped in the first quarter, definitely. The other big element I would single out is our progress on Vision 25. As we mentioned, we accelerated and we started last year, given the very challenging year we experienced last year.
Speaker Change: Perhaps I'll ask a question. Please ensure your headsets reflected in RBC Luckily.
Speaker Change: And our first question comes from catcher Johnson from BMO capital markets.
Speaker Change: Please go ahead.
Speaker Change: Hi, Thank you for taking my questions, maybe just starting off John Mark You mentioned the first quarter was ahead of expectations can you talk a bit more about what drove that.
Speaker Change: Yes, good morning, guys. Thanks for the question so.
Speaker Change: I think we have seen a good performance at our muscle Shoals plant and we continued to make progress. So that has helped in the first quarter.
Speaker Change: Definitely the other big element I would single out as our progress in vision 25, as we mentioned we accelerated as we started last year given the very challenging year, we experienced last year, we exited relate to the cost reduction program and the operating efficiencies program and <unk> 25 is shifting.
John Mark Germain: We accelerated our cost reduction program and the operating efficiencies program. And Vision 25 is sweeping out to be a big success for us this year. So these two elements, I think, are the main drivers of our performance.
Speaker Change: To be a big success for us this year. So these two elements I think of.
Jack Guo: And Jack wants to add a couple of comments here. Yeah, thank you, HMR. And thank you, Katja, for the question. So the only other thing I would add is, you know, we have done a bit better in the ANT business unit. And if you recall, we talked about this last year, the weakness in the demanding aerospace has caused us to kind of push some of the higher margin volumes to the right. And we said that that's not going away. It's just the timing. And now we're seeing some of the benefits. And we expect to see that throughout the rest of the year.
Speaker Change: The main drivers of <unk>.
Speaker Change: Outperformance in Jack wants to add a couple of comments here, yes. Thank you Jean Marc and thank you cards here for the question. So the only other thing I'll add is we have.
Speaker Change: <unk> done a bit better in the A&D business unit and if you recall, we talked about this last year.
Speaker Change: Weakness in the demanding aerospace has caused us to kind of push some of the higher margin volumes to the right.
Speaker Change: We said that that's not going away. It's just the timing at that we're seeing some of the benefits.
John Mark Germain: And also, the business unit has done, along with everybody else, has done a great job in terms of cost control, as John Mark Maybe just as a follow-up.
Speaker Change: We expect to see that.
Speaker Change: Throughout the rest of the year and also the business unit has done along with everybody else has done a great job in terms of cost control as John Mark mentioned.
John Mark Germain: Jackie said on the aerospace side, does that mean that the inventory issue is behind? No, it's not behind. I mean, our own inventories are well in control. But the supply chain is still struggling to ramp up. You also saw the news that the Boeing deliveries in China are suspended or halted. I don't know exactly how to describe it. So that's not a good news for the supply chain.
Speaker Change: Maybe just as a follow up.
Speaker Change: Jack you said.
Speaker Change: The aerospace side does that mean that the inventory issue is behind.
Speaker Change: No its not behind.
Speaker Change: Our own inventories are well in control.
Speaker Change: The supply chain is still.
Speaker Change: Yeah.
Speaker Change: Struggling to ramp up you also saw the news that the Boeing deliveries in China.
Speaker Change: Suspended or <unk> don't know exactly how to describe it. So that's not a good news for the supply chain. So I think we are.
John Mark Germain: So I think we are going to go through another year of difficulties in the purpose of life. and that is included.
Speaker Change: Going to go through another year of difficulties in the ramp up of the supply chain.
Speaker Change: And that is including thank you I'll call back into the queue.
Corinne Blanchard: The next question comes from Corinne Blanchard from Deutsche Bank. Corinne, your line is open, please go ahead. Hey, good morning, everyone. Congratulations on the strong quarter. Maybe to come back on the in-market question, could you share, so the aerospace was probably stronger than most people expected for 1Q and probably with the mix of defense and military. Is that trend to be expected to continue into 2Q and 3Q? And then the second question would be on the auto impact and kind of where do you think things will shape and shake out for the second half of the year?
Speaker Change: Our next question comes from Karim <unk> from Deutsche Bank. Your line is open. Please go ahead.
Karim: Hey, good morning, everyone congratulation on the strong class now.
Karim: Maybe if you come back on the end market question.
Karim: Could you share the Iowa space with probably stronger than most people point <unk> and.
Karim: Probably with the missile defense and military.
Karim: Trying to be expected to continue into <unk>.
Karim: And then the second question would be on the alto impact in tariff and kind of when do you think.
John Mark Germain: Good morning, Corinne, and thanks for your kind words. So aerospace, we think it's going to be choppy, continue to be choppy this year. But we do believe that the progress we've made is sustainable. And we do believe that our focus on high value-added products and those markets that are shining a bit more is paying off. And we expect that to continue throughout the year. Exactly how it plays out by quarter is difficult to tell, but I think we've got a good outlook for the full year.
Karim: We shape in Shanghai for the second half of the year.
Karim: Good morning, Corey and thanks for your kind words.
Karim: <unk> Aerospace, we think it's going to be choppy continued to be choppy. This year, but we do believe that the progress. We've made these are sustainable and we do believe that our focus on high value added products and those.
Karim: Those markets that are shining a bit more.
Karim: Staying off and we expect that to continue throughout the year.
Karim: Exactly how it plays out by.
Karim: By quarter is difficult to tell but I think we've got a good outlook for the full year.
John Mark Germain: And in terms of auto, it is a big mystery. We are seeing, you know, the reduction in the outlook. S&P recently downgraded their provisions for the market numbers for both Europe and the US. We had been conservative. We thought going into the year and embedded into our guidance compared to the forecasts at the time. So we're seeing the forecast converging with our own expectations. And we believe that, you know, the tariffs are certainly creating more uncertainty here in North America. But overall, given the platforms we are on, the launches that we're on, we believe we Absent a major catastrophe in the market tanking to another 20% down compared to our current expectations, I think we are reasonably safe for this year.
Karim: And in terms of auto.
Karim: Is a big mystery, we are seeing.
Karim: A reduction in the outlook S&P recently downgraded.
Karim: Provisions for the <unk>.
Karim: Market numbers for both the Europe and the U S. We had been conservative we saw results.
Karim: Going into the year and embedded into our guidance compared to forecast at the time. So we are seeing the forecast converging with our own expectations and we believe that.
Karim: Terry sell certainly creating more uncertainty here in North America, but overall given the platforms. We are on the launches that we are on we believe.
Karim: We.
Karim: Absent a major catastrophe in the market thinking too.
Karim: Another 20% down compared to our current expectations I think we are a reason.
John Mark Germain: It's not going to be a pleasant year, as we can see, and especially in the S&I segment, but I think we are controlling what we can control and our guidance is reflected. Thank you.
Karim: Reasonably say for this year.
Speaker Change: I was going to be a pleasant Hill.
Karim: As we can see and especially in DSS.
Speaker Change: <unk> segment, but I think we are.
Karim: We're controlling what we can control.
Speaker Change: Our guidance reflects this.
Corinne Blanchard: And then maybe just, again, on the Alto and Tahrif, and then... from the tariffs, how much cost impact you will get? Because I think I saw on one of your slides, you had about 2 million impact in one queue. And then from the rest of the rest of the year, we can expect another 20 million.
Karim: Yes.
Karim: Thank you.
Karim: And then maybe just again on the Alto and tariff and then.
Karim: From the carriers, how much cost impact because I think I saw on one of his signed yet but to maybe an impact in <unk> and then from there right.
Corinne Blanchard: So is there like a specific cadence we should be thinking about between the cooperative? Or is that more like an even cost to add? Yeah, Corinne, so it's related to the cross-border shipments, right? So, and there is a little bit of seasonality, but assume it to be fairly even. And you're right, the gross impact before mitigation, we're assuming about $20 million.
Karim: Alright, something yes, we can expect another <unk> <unk>.
Karim: So is that I guess specific cabinet inflation with thinking about between the quarter or is that like an even cost to what.
Karim: Yes.
Karim: So it's related to the cross border shipments right. So and there is a little bit of seasonality, but assume it to be fairly even and youre right. The gross impact before mitigation.
Karim: We're assuming about $20 million headwind.
Bill Peterson: The next question comes from Bill Peterson from J.P. Morgan. Bill, please go ahead. Hi, good morning, Jack and John, Mark, I appreciate the opportunity to ask questions. So maybe following up on the tariff one. So I think the last quarter, you talked about the overall environment presenting opportunities for the team. And now you're talking about opportunities and costs.
Speaker Change: The next question comes from Bill Peterson from Jpmorgan. Please go ahead.
Bill Peterson: Yes, hi, good morning, Jack.
Speaker Change: Jack and John Mark I appreciate the opportunity to ask questions. So maybe following up on the tariffs.
John Mark Germain: So I'm reading this as somewhat net neutral overall, but maybe unpacking this a bit further. So you have potential, the February price hikes, maybe you can elaborate on what percentage of the business, I think it's mostly flat rolled, as you mentioned, that you can, you know, what the expected uplift, maybe a little more detail on how you can maybe limit the impacts of this Canadian extruding business and just trying to get a sense for, you know, maybe a little bit more detail in the presentation, maybe how to think about it from an overall perspective as you see it today, realizing it's a fluid situation.
Speaker Change: The last quarter, you talked about the overall environment presenting opportunities for the team and now youre talking about opportunities and cost Im reading this as somewhat net neutral overall, but maybe unpack this a bit further so the parcel.
Speaker Change: February price hikes, maybe you can elaborate on what percentage of that business I think it's most of the flat rolled as you mentioned that you can.
Speaker Change: What's the expected uplift to EBITDA.
Speaker Change: Maybe a little more detail on how you can maybe limit the impacts of the Canadian extrusion extruded business.
Speaker Change: I'm, just trying to get a sense for.
Speaker Change: Maybe a little bit more detail on the puts and takes and maybe how to think about it from an overall perspective as you see it today, realizing it's a fluid situation.
John Mark Germain: Yeah, good morning, Bill. And thank you for this difficult question. So I think compared to what we're describing in February, we're still in the same place that we believe overall, the tariffs that we're seeing are presenting a net opportunity for us. We wanted this time to give you a bit more context about specifically the extrusions that we are importing from Canada to make autopops in the U.S. And that is a flow that presents a substantial headwind to us with $20 million worth of costs, additional costs to us. Now, to mitigate this, before I go into the other positive benefits of the tariffs, right?
Bill Peterson: Yes, good morning, Bill and thank you for this difficult question.
Speaker Change: So.
Speaker Change: I think compared to what were describing in February we will sit in the same place that we believe overall the tariffs that we're seeing.
Speaker Change: Our presenting a net opportunity for us we wanted this time to give you a bit more context about.
Speaker Change: Specifically the extrusion that we are importing from Canada to make photo pumps in the U S and that is a fluids at.
Speaker Change: Presents a substantial headwind to us was $20 million worth of.
Speaker Change: Of course additional cost to us now to mitigate this before I go into the other positive benefits of the of the tariffs right to mitigate this we're working very hard with our customers on pass throughs.
John Mark Germain: To mitigate this, we're working very hard with our customers on pass-through. Ultimately, those tariffs will end up being reflected in the sticker price. and we have some encouraging discussions and we even have one customer at this stage that has agreed to a full pass-through for this tariff. So that 20 million will dwindle as we are successful in passing through, you know. We hope all of it, most of it, and at the very least, some of it. At the same time, we are going to look at the resourcing from other sources that are not territory. and then obviously working very diligently on our cost structure, on other pockets of our cost structure to offset.
Ultimately those tariffs will end up being reflected in the sticker price.
Speaker Change: And we have some encouraging discussions and we even have one customer at this stage that has agreed to a full pass through fully salaries.
Speaker Change: So that $20 million will dwindle as well successfully.
Speaker Change: Passing through.
Speaker Change: We hope all of it most of it at the very least some of it at the same time, we are going to look at our Resourcing.
Speaker Change: From other sources at all no tariff impact.
Speaker Change: And then obviously working very diligently on our cost structure, although the buckets of our cost structure to offset this.
John Mark Germain: Then, on the metal side, as you know, the scrap that we're using, the absolute benefit we get from using scrap is getting bigger with the imposition on 232 tariffs on aluminum. So that creates an opportunity for us and to the extent that our plants are running well, which they are, if we recycle more metal, we even compound this benefit by, you know, we get access to cheaper scrap relative to and we make more of it. So that's an important offset to our cost side. And then finally, when the whole point of tariffs is to make the domestic industry more competitive.
Speaker Change: Then on the metal side as you know the scrap.
Speaker Change: That's really using the absolute benefit we get from using scrap is getting bigger with.
Speaker Change: The position on the <unk> tariffs on aluminum so that.
Speaker Change: It's an opportunity for us and to the extent that our plants are running well, which they are if we have recycled more metal we even compound. This benefited by we get access to cheaper scrap related to prime and we make more of it. So that's an important offset to.
Speaker Change: R R.
Speaker Change: Cost side, and then finally, when the old point of theories as to make the domestic industry more competitive.
John Mark Germain: And as we have said numerous times, we are local for local, even we, and as we do that, we become more competitive and there is more opportunity for us to expand our market. Now, in addition, then one can say, well, but then what happens is there is a substantial reduction in demand for the end product. because tariffs have made the products more expensive. And that's especially true for automotive, where we talk about what happens if, you know, the price of cars goes up by 25%. Now, in that case, something that is important to understand is that in our case, Constellium The vast majority of what we sell is made in the U.S.
Speaker Change: And as we said numerous times, we are local for local.
Speaker Change: And as we do that will become more competitive and there is more opportunity for us to expand our margins.
Speaker Change: In addition, then one can say well, but then what happens is there is a substantial reduction in demand for the end products.
Speaker Change: Because tariffs have made the products more expensive and that's especially true for automotive, where we talk about what happens if the price of <unk> goes up by 25%.
Speaker Change: In that case, something that is important to understand is that in our K.
Speaker Change: Base.
Speaker Change: <unk>.
John Mark Germain: and delivered to plants that are making cows in the US. And as a consequence, if the total market for cows goes down because of tariffs, it is fair to say that the domestic production will be less impacted and hopefully could even benefit from it. And that's where it becomes very difficult to ascertain what the indirect two or three sequences down the road are for us. But we believe we're in a decent position to offset the direct impact of the tariff, benefit on scrap and margin expansion for our production here in the US, and potentially, given our customer mix, we may be less exposed than the overall market.
Speaker Change: The vast majority of what we sell is made in the U S.
Speaker Change: And delivered two plants, making cars in the U S and as a consequence either global.
Speaker Change: All markets locales goes down it is fit because of salaries that is fair to say that the domestic production will be less impacted than hopefully could even benefit from it and that's where it becomes very difficult to ascertain what the indirect to two or three.
Speaker Change: Sequence is down the road for us, but we believe we're in a decent position to offset the direct impact of the tariff benefit on scrap and.
Speaker Change: Margin expansion for our production here in the U S and potentially given our customer mix, we may be less exposed than the overall markets.
John Mark Germain: Yeah, thanks for that. Maybe I can hit on one of the points you were talking about on scrap, because I think, you know, we exited last year, and you're talking about maybe a 15 to 20 million per quarter impact, but I think the, I think the relatively tight exiting last year, maybe if you think about UBC to the Midwest transaction price, maybe close to 80% exit rate, but I think we're now closer to 70%, which I think was somewhere around this time last year. So I guess with that in mind, how should we think about, well, first of all, do you have any updated thoughts on how we should think about scrap scrubs for this year, and then assuming it stays a bit wider, like we're seeing now, what would be the, maybe the impact?
Yes, thanks for that maybe I can hit on one of the points you were talking about on scrap because I think we're done.
Speaker Change: Last year, and Youre talking about maybe a $15 million to $20 million per quarter impact, but I think the I think.
Speaker Change: It's relatively tight exiting last year, maybe if you think about UBC to the Midwest transaction price, maybe close to 80% exit rate. So I think we're now closer to 70%, which I think was somewhere around this time last year. So I guess with that in mind, how should we think about well first of all what do you have any updated thoughts on how we should think about scrap scraps for this year and then assuming it stays a bit.
John Mark Germain: I presume it would be either at the low end of the 15 to 20 million, or maybe even below that. So think of the fact that we buy our scrap under annual, quarterly, and spot market. So we never reflect the spot price, you will never see a direct impact between spot price and our scrap results, right? So number one, so we smooth the peaks and valleys. And what happened last year is we still benefited from aluminum, we had contracted scrap, we had contracted at a very good spread, in 23, in 24. But the new scrap we're contracting was extremely expensive.
Speaker Change: Wider like we're seeing now what would be the maybe the impact that would presumably be at the low end of the 15 to 20 million or maybe even below that so think of the fact that we buy all scrubbed under annual quarterly and splits market. So we never reflect the spot price you will never see.
Speaker Change: Direct impact it's in spot price and an.
Speaker Change: In our scrap results right. So number one so we smooth the peaks and valleys and what happened last year is we still benefited from aluminum we had contracted scrap with contracted.
Speaker Change: Very good spreads.
John Mark Germain: Now this year, we're seeing a reversal in the dynamics, scraps are becoming cheaper, but we also have some scrap that we bought at a higher price and especially in the first quarter. So I think some of that mechanics I don't want to go into too much detail but what we're saying is that the scrap spreads today are better and this is helping us this is a positive for us but it is included in our guide. Okay, that's, that's helpful. And then if I can switch to, you know, the packaging, I guess, the PARP segment, more broadly, you call out the improved shipments and, you know, mix and so forth, and you're calling out Muscle Shoals improvement in particular, I guess, on the on the price of the mix, can you understand the uplift?
Speaker Change: In 'twenty three 'twenty four but the new scrap were contracting was extremely expensive now this year, we will see a reversal in the dynamic scrubs, all becoming cheaper, but we also have some scrubbed that we bought at a higher price and especially in the first quarter. So I think some of it some of that.
Speaker Change: Mechanics, I don't want to go into too much detail, but.
Speaker Change: What we'll see is saying is that the scrap spreads today are better and this is helping us. This is a positive for us but it is included in our guidance.
Speaker Change: Okay. That's that's helpful. And then if I can switch to the packaging I guess, the PARP segment more broadly you called out the improved shipments in.
Speaker Change: Mix, and so forth and calling out muscle Shoals improvement in particular, I guess on the pricing and mix can we understand the uplift I had thought that maybe avs.
John Mark Germain: I thought that maybe ABS EBITDA margins were actually better than packaging. Or maybe the mix is more of a statement, especially, I'm not sure. But and then on the Muscle Shoals performance, I guess, how should we think about, you know, the shipment uplift and cost performance in the second quarter and beyond now that you know, it seems to be operating well. So I think you're able to participate in this and sort of improve demand environment, maybe perhaps also benefiting from fewer imports as a result of tariffs as well. Yeah, Bill. So I'll take the first part of your question.
Speaker Change: The margins were actually better than packaging.
Speaker Change: Or maybe the mix is more of a statement, especially I'm not sure but.
Speaker Change: And then on the muscle Shoals performance I guess, how should we think about the shipment uplift in cost performance in the second quarter and beyond now that it seems to be operating well.
Speaker Change: I think youre able to participate in this some sort of improved demand environment.
Speaker Change: Maybe perhaps also benefited from fewer imports as a result of tariffs as well.
John Mark Germain: And that's related to price and mix for PARP and the good guy there. That's mostly related to kind of micro mix within packaging. So we sell more kind of end stock, if you will, which carry a higher pricing. Yeah. Now, At the same time, automotive does have a higher margin, and automotive is not as good this year as it was last year. So you've got all kinds of effects here. Going forward, we think the weakness in automotive is going to continue. I mean, that's part of our expectations. But that does create an opportunity for us to sell more can sheets.
Speaker Change: Yes, so I'll take the first part of your question.
Speaker Change: And that's related to price and mix for our PARP and.
Speaker Change: Good Guy there.
Speaker Change: Mostly related to kind of micro mix within packaging. So we sell more kind of end stock, if you will which carry a higher pricing.
Speaker Change: Yes.
Speaker Change: No.
Speaker Change: At the same time automotive it does have a higher margin in automotive is not as good. This year as it was last year. So you got all kinds of effects here going forward. We've seen the weakness in automotive is going to come to you I mean, that's sort of our expectations.
John Mark Germain: There is demand for more can sheets. And we are very keen to support our customers in any way we can. I think that opportunity will continue to be here. As I said, you know, we turned a corner in the socials. Production is much better and healthier and more stable than it ever was. And I think that creates opportunities for us going forward.
Speaker Change: This week, but that does create an opportunity for us to sell more can sheet. There is demand for can sheet.
Speaker Change: We are very keen to support our customers in any way we can.
Speaker Change: I think that opportunity will continue to be here.
Speaker Change: As I said, we turn the corner in the Socials production is.
Speaker Change: Much better and healthier and more stable than it ever was and I think that creates opportunities for us going forward.
Operator: Thanks so much. Thank you, Bill. As a reminder, that's star followed by one to ask a question today.
Speaker Change: Yes.
Mark: Thanks Mark.
Josh Sullivan: And the next question comes from Josh Sullivan from The Benchmark Company. Josh, please go ahead, your line is open. Good morning. Good morning, Josh. Hey, Josh.
Speaker Change: Bill Thank you Bill.
Speaker Change: As a reminder, the flip I wanted to ask a question today.
Speaker Change: Question comes from Josh Sullivan from the Benchmark Company. Please go ahead. Your line is open.
John Mark Germain: If you're thinking about another year of aerospace supply chain difficulties, what was the incremental on that de-stock cycle from last quarter? You know, if you're thinking about a year from today, where were your thoughts last quarter? Just trying to think of the incremental sequentially on that year timeline. So I'll try to answer what I understand of your question. If not understanding it well, just tell me. We were thinking that it was going to be yet another year of challenges in the supply chain on the basis of our discussion with our customers. So things have not fundamentally changed because between what we're thinking in November, December of last year and now, maybe the exact shape of it is proving to be a bit different but the challenges are definitely there.
Josh Sullivan: Hey, good morning.
Speaker Change: Morning, Joe Hi, Josh.
Josh Sullivan: If youre thinking of.
Josh Sullivan: If you're thinking about another year of aerospace supply chain difficulties, what was the incremental on that destock cycle from last quarter, if you're thinking about a year from today.
Josh Sullivan: What are your thoughts last quarter, just kind of think of the incremental sequentially on that timeline.
Josh Sullivan: So I'll try to answer what I understood your question.
Not understanding it well just tell me.
Josh Sullivan: We were thinking that it was going to be.
Josh Sullivan: Yet another year of challenges in the supply chain on the basis of our discussion with our customers. So things have not fundamentally changed because between which we were thinking in November December of last year and now maybe the exact shape of it is.
John Mark Germain: And you see it, I mean, our shipments are down year on year compared to the first quarter of last year in aerospace. But that is what we're expecting.
Josh Sullivan: Is proving to be a bit different but the challenges are.
Josh Sullivan: Definitely the new Cotwo akshay themselves down year on year compared to the first quarter of last year in aerospace, but that is what we're expecting.
John Mark Germain: and sequentially I mean it's relatively flat to the fourth quarter of last year and the third quarter of last year so you know it's weak but quite stable with a better How would you be impacted if Airbus chooses to increase production at the? Did we answer your question, Joe? Yeah, no, I mean, more or less. Yes.
Josh Sullivan: Yes.
Josh Sullivan: Sequentially, I mean relatively flat to the fourth quarter of last year end.
Josh Sullivan: The third quarter of last year, so, it's weak, but quite stable with a better mix.
Josh Sullivan: Okay.
Josh Sullivan: And how would you be impacted if Airbus chooses to increase production at the did we answer your question, Joe I mean more or less yes.
John Mark Germain: But but, you know, also, if Airbus chooses to increase production at the Alabama facility, how would you be impacted by that? Well, we would get more volumes from them. We've got to. Our contract with them is requirements driven, so the more they produce, the better it is for us. Now how that happens depends on whether the inventories are in the supply chain and where it's at and as you know there's a lag between you know six months to two years roughly depending on the part but this is this would be a net positive for us yet.
Speaker Change: But also.
Speaker Change: Airbus chooses to increase production at the Alabama facility, how would you be impacted by that.
Speaker Change: Well, we would get more volumes from them.
Speaker Change: We've got a.
Speaker Change: Our contracts with them is.
Speaker Change: No requirements driven so the more they produce a better it is for us.
Speaker Change: Now how that happens.
Speaker Change: Defense.
Speaker Change: The inventories in the supply chain and where it's at and as you know there's a lag between you six months to two years roughly depending on the pumps, but this is this would be a net positive for us yes.
John Mark Germain: And then just one last one, you know, what are you seeing as far as European demand and TID for defense applications or indications for longer term order flow just as the continent looks to build out, you know, more of an internal defense industrial base? Yeah, so we see some good signs today. It's actually a causing us to increase our inventories in the valley, for instance, as we are restarting our operations, because there's a lot of demand for tanks and other vehicles. And then longer term, I think it's all a matter of how serious and committed the Europeans will be in implementing what they decided, which is, I think it's 800 billion euros of additional spending in defence, right?
Speaker Change: Okay, and then just one last one.
Speaker Change: What are you seeing as far as European demand in Tid for defense applications or indications for longer term order flow just as the continent looks to build out more of an internal defense industrial base.
Speaker Change: Yes, so we see some good signs today.
Speaker Change: Judy.
Judy: Causing us to increase our inventories in the valley for instance, as we are restarting operations, because theres a lot of demand for.
Speaker Change: The tanks and other vehicles.
Speaker Change: And then.
Speaker Change: Longer term I think it's still a matter of are serious and committed the Europeans will be.
Speaker Change: In.
Speaker Change: Implementing with the decided which is.
John Mark Germain: So if they do that, that's definitely a good thing for us. But as we all know, between intentions and reality, there can be a gap and the gap can be just time, or it can be a gap in terms of actually does it get implemented. So we'll have to see. But in all the discussions we have with our customers in the defence space in Europe, everybody's ramping up and trying to get ready for substantially higher levels of production and so on. Great.
Speaker Change: I think it's 800 million euros of additional spending in defense right. So as they do that that's.
Speaker Change: The good thing for us.
Speaker Change: As we will new between intentions in reality that can be a gap and the gap can be just time or it can be a gap in terms of actually does get implemented.
Speaker Change: But in all the discussions we have with our customers in the defense areas.
Speaker Change: Aerospace in Europe, there is everybody is ramping up and.
Speaker Change: Trying to get ready for <unk>.
Josh Sullivan: Thank you for your time. Thank you, Josh.
Speaker Change: Substantially higher levels of production and so are we.
Operator: As we have no further questions, I'll hand the call back to Jean-Marc Tremayne for some closing...
Josh Sullivan: Great. Thank you for the time, Thank you Josh.
John Mark Germain: Thank you, Adam. Well, thank you, everybody, for your participation today. As you can see, we remain very focused in this uncertain and turbulent times, very focused on controlling what we can control, making sure we seize every opportunity that is ahead of us and making sure we build a company that's going to emerge stronger after these vicissitudes in the market. Thank you very much and I look forward to updating you on our progress in a few months.
Speaker Change: We have no further questions I'll hand, the call back to Sean <unk> for some closing comments. Thank you well. Thank you everybody for your participation today as you can see we remain very focused in these uncertain and turbulent times are very focused on controlling what we can control, making sure. We seize the opportunity that is ahead of us and <unk>.
Sure we build a company that's going to emerge stronger.
Speaker Change: Still these decision tubes in the market pass. Thank you very much and I look forward to updating you on our progress in a few months.
Operator: This concludes today's call, thank you very much for your attendance, you may now disconnect your
Speaker Change: This concludes today's call. Thank you very much for your attendance you may now disconnect your lines.