Kaiser Aluminum Corporation — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022, compared with the same period in 2021. Kaiser manufactures specialty semi-fabricated aluminum products and reports as one operating segment. Results include its Warrick packaging business, acquired on March 31, 2021; the prior-year quarter included only one day of Warrick operations.
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Net sales | $948.8 million | $324.0 million |
| Operating income | $25.2 million | $16.9 million |
| Net income | $8.1 million | $4.5 million |
| Diluted EPS | $0.51 | $0.28 |
| Operating cash flow | $1.4 million | $(11.4) million |
| Capital expenditures | $28.3 million | $9.1 million |
- Sales increased 193% year over year, reflecting a 145% increase in shipments to 335.4 million pounds and a 19% increase in average realized price per pound. The shipment increase primarily reflects 174.7 million pounds of Packaging volume from Warrick.
- Value added revenue (VAR), a company-defined non-GAAP measure, was $370.4 million versus $171.7 million. Adjusted EBITDA was $55.0 million versus $37.5 million; Adjusted EBITDA as a share of VAR was approximately 14.8% versus 21.8%.
- Operating margin was approximately 2.7%, down from 5.2%; net margin was approximately 0.9%, down from 1.4%. Product costs rose to 91% of sales from 81%, with inflation, higher metal and energy costs, freight constraints, supply-chain issues and inefficiencies pressuring conversion economics.
- Operating cash flow was modestly positive despite working-capital outflows, including increases in receivables and inventory. Cash and cash equivalents were $261.0 million at quarter-end, down from $303.2 million at year-end. Total assets were $2.54 billion and stockholders’ equity was $708.2 million.
- Long-term debt carrying value was $1.037 billion. There were no revolver borrowings. Reported liquidity was $823.5 million, including $261.0 million cash and $562.5 million pro forma revolver availability following the April amendment.
Changes, outlook and risks
- Packaging sales were $448.0 million; GE products and Aero/HS products also grew. Automotive Extrusions shipments fell 14%, which management attributed to semiconductor shortages. Total shipments rose substantially because of the Warrick acquisition, so reported year-over-year growth is not wholly organic.
- Management reiterated its full-year 2022 outlook for VAR growth of 20%–25% and Adjusted EBITDA margin of 17%–20% of VAR. It expects Q2 major maintenance expense to be approximately $8–$10 million higher than Q1 and full-year capital spending of approximately $180–$200 million.
- Management cited inflation, freight and transportation bottlenecks, supply-chain inefficiencies, and shortages in magnesium and silicon. A magnesium supplier had declared force majeure and was delivering less than contracted; uncovered magnesium costs may fluctuate. Management also identified demand recovery in aerospace and strength in packaging and general engineering.
- On April 7, 2022, the revolving credit commitment was increased from $375 million to $575 million and maturity extended to April 2027; up to $50 million may be used for letters of credit. The amendment also updated the benchmark reference from LIBOR to SOFR.
- Environmental accruals were $16.4 million. The company said costs could reasonably exceed the accrual by up to an estimated $11.7 million over the remediation period, and actual costs may change as studies and remediation plans progress. A newly identified asbestos-related asset retirement liability of $2.3 million was recorded for Warrick.
- The company sold $407.4 million of customer receivables through supply-chain financing arrangements during the quarter and incurred $2.9 million of discount fees; it expected full customer reimbursement. These arrangements accelerated cash receipts and related to approximately 43% of quarterly net sales.
- The company stated that there were no material changes to its risk factors or material legal-proceeding developments since its 2021 Form 10-K. Disclosure controls were judged effective; Warrick integration into internal financial controls was ongoing.
Key facts for investors to verify
- How much of sales and VAR growth reflects Warrick, metal-price changes and shipment growth versus underlying organic demand.
- Whether cost inflation, freight constraints and supply-chain disruptions continue to pressure conversion margins, and whether full-year guidance remains achievable.
- Working-capital trends, including receivables, inventory, customer receivable sales and the sustainability of positive operating cash flow.
- Execution and returns on the planned $180–$200 million of 2022 capital spending, including Warrick’s roll-coat line and the Trentwood plate-stretcher project.
- Potential environmental remediation costs beyond the recorded accrual, and the extent and duration of the Warrick asbestos obligation.