Constellium Q4 2024 Earnings Report

Constellium EPS Results

• Actual EPS: -$0.34
• Consensus EPS: $0.13
• Beat/Miss: Missed by -$0.47
• One Year Ago EPS: N/A

Constellium Revenue Results

• Actual Revenue: $1.72 billion
• Expected Revenue: $1.69 billion
• Beat/Miss: Beat by +$28.55 million
• YoY Revenue Growth: N/A

Constellium Announcement Details

• Quarter: Q4 2024
• Date: 2/20/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, February 20, 2025
• Conference Call Time: 10:00AM ET

Constellium (NYSE:CSTM), together with its subsidiaries, engages in the design, manufacture, and sale of rolled and extruded aluminum products for the packaging, aerospace, automotive, defense, and other transportation and industry end-markets. The company operates through three segments: Packaging & Automotive Rolled Products, Aerospace & Transportation, and Automotive Structures & Industry. The Packaging & Automotive Rolled Products segment produces rolled aluminum products, including can stock and closure stock for the beverage and food industry, as well as foil stock for the flexible packaging market. This segment also supplies automotive body sheets and heat exchangers for the automotive market; and specialty reflective sheets. The Aerospace & Transportation segment provides rolled aluminum products, including aerospace plates, sheets, and extrusions; and aerospace wing skins, as well as plates and sheets for use in transportation, industry, and defense applications. The Automotive Structures & Industry segment offers extruded aluminium products and aluminium structural components for the automotive industry, including crash-management systems, body structures, side impact beams, and battery enclosures; and fabricates hard and soft alloy extruded profiles for various industry applications in the automotive, engineering, rail, and other transportation end markets. This segment also provides downstream technology and services, which include pre-machining, surface treatment, research and development, and technical support services. It sells its products directly or through distributors in France, Germany, the Czech Republic, the United Kingdom, Switzerland, and the United States, as well as Shanghai, and Seoul. The company was incorporated in 2010 and is headquartered in Paris, France.

Constellium Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Hello and welcome to the Constellium Fourth Quarter and Full Year twenty twenty four Results Conference Call. My name is Alex and I'll be coordinating the call today. I'll hand it over to your host, Jason Hirsch Scheizer, Director of Investor Relations. Please go ahead.

[Jason Hershiser, Director of Investor Relations at Constellium]

Thank you, Alex. I would like to welcome everyone to our fourth quarter and full year twenty twenty four earnings call. On the call today, we have our Chief Executive Officer, Jean Marc Germain and our Chief Financial Officer, Jack Guo. After the presentation, we will have a Q and A session. As a reminder, and as we previously announced, we are now reporting in U.

[Jason Hershiser, Director of Investor Relations at Constellium]

S. Dollars and under U. S. GAAP starting with our fourth quarter and full year '20 '20 '4 results today. A copy of the slide presentation for today's call is available on our website at constellium.com and today's call is being recorded.

[Jason Hershiser, Director of Investor Relations at Constellium]

Before we begin, I'd like to encourage everyone to visit the company's website and take a look at our recent filings. Today's call may include forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include statements regarding the company's anticipated financial and operating performance, future events and expectations and may involve known and unknown risks and uncertainties. For a summary of specific risk factors that could cause results to differ materially from those expressed in the forward looking statements, please refer to the factors presented under the heading Risk Factors in our annual report on Form 20 F and in future filings under Form 10 ks. All information in this presentation is as of the date of the presentation.

[Jason Hershiser, Director of Investor Relations at Constellium]

We undertake no obligation to update or revise any forward looking statement as a result of new information, future events or otherwise, except as required by law. In addition, today's presentation includes information regarding certain non GAAP financial measures. Please see the reconciliations of non GAAP financial measures attached in today's slide presentation which supplement our GAAP disclosures. Before turning the call over to John Mark, I wanted to remind everyone that beginning early last year, we revised the definition of adjusted EBITDA at the consolidated level based on our prior discussions with the SEC. The new definition will no longer exclude the non cash impact of metal price lag.

[Jason Hershiser, Director of Investor Relations at Constellium]

We will continue to provide investors and other stakeholders with a non cash metal price lag impact and it is necessary to get a true assessment of the economic performance of the business. Our segment adjusted EBITDA will continue to exclude this impact and any guidance we provide for adjusted EBITDA will also exclude the impact. And with that, I would now like to hand the call over to Jean Marc.

[Jean-Marc Germain, CEO & Executive Director at Constellium]

Thank you, Jason. Good morning, good afternoon, everyone, and thank you for your interest in Constellium. Let's begin on Slide five. I want to start with safety, our number one priority. Our recordable case rate for the year of two point zero per million hours worked was slightly higher than the prior year, but I am pleased to report that we continue to deliver best in class safety performance.

[Jean-Marc Germain, CEO & Executive Director at Constellium]

We are committed to achieving our safety target to reduce our recordable case rate to 1.5. Now let's turn to Slide six and discuss the highlights from our fourth quarter performance. Shipments were 328,000 tons, down 2% compared to the fourth quarter of twenty twenty three, mainly due to lower shipments in A and T and AS and I. Revenue of $1,700,000,000 decreased 1% compared to the fourth quarter of twenty twenty three, primarily due to lower shipments and unfavorable price and mix, partially offset by higher metal prices. 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.

[Jean-Marc Germain, CEO & Executive Director at Constellium]

Our net loss of $47,000,000 in the quarter compares to net income of $5,000,000 in the fourth quarter of twenty twenty three. Adjusted EBITDA was $125,000,000 in the quarter, though this includes a negative impact at Vale of $15,000,000 as a result of the flood. This also includes a positive noncash impact from metal price lag of $27,000,000 If we exclude the impact of the flood and the impact of metal price lag, as Jason mentioned earlier, the real economic performance of the business reflects adjusted EBITDA of 113,000,000 in the quarter compared to the $178,000,000 we achieved in the fourth quarter of twenty twenty three. Cash from operations was $61,000,000 in the quarter, and I'm pleased to report that we continued our share buyback program. During the quarter, we returned $18,000,000 to shareholders through the repurchase of 1,600,000.0 shares.

[Jean-Marc Germain, CEO & Executive Director at Constellium]

Before turning to our full year performance, I wanted to give you a quick update on the flooding situation in the valley. As of today, the business is on track to complete production ramp up by the end of the first quarter this year, which is in line with our prior expectations. As we mentioned last quarter, we expect some cost impact in 2025 as production will continue to ramp up and we expect to receive the remaining portion of the insurance proceeds in 2025 as well. While the impact of the flood had a material impact on our business, I am pleased that the total damages from the event came in below our original insurance growth damage assessment and we will be able to put the event in the rearview mirror very soon. Now turn to Slide seven for our full year highlights.

[Jean-Marc Germain, CEO & Executive Director at Constellium]

For the full year, shipments were 1,400,000 tons or down 4% compared to 2023. Revenue of $7,300,000,000 decreased 6% compared to 2023, primarily due to lower shipments and unfavorable price and mix, partially offset by higher metal prices. Our net income of $60,000,000 compares to net income of $157,000,000 in 2023. Adjusted EBITDA was $623,000,000 for the full year in 2024, though this includes a negative impact at Vale of $33,000,000 as a result of the flood. This also includes a positive noncash impact from metal price lag of $55,000,000 Again, if we exclude the impact of the flood and the impact of metal price lag, the real economic performance of the business reflects adjusted EBITDA of $6.00 $1,000,000 for the year compared to the record $754,000,000 we achieved in 2023.

[Jean-Marc Germain, CEO & Executive Director at Constellium]

Given the change in year over year performance during 2024, we accelerated our cost reduction efforts and took actions to reduce working capital to align to the current demand environment, which Jack and I will be discussing later on. Moving now to free cash flow. Our free cash flow for the year was negative 100,000,000 in 2024. If you exclude the impact of the valley flood and include cash received for the collection of deferred purchase price receivables, free cash flow would have been positive $30,000,000 in 2024, which Jack will cover in more detail. Our leverage at the end of 2024 was 3.1 times.

[Jean-Marc Germain, CEO & Executive Director at Constellium]

If we exclude the valley flood impact, leverage was 2.9 times at the end of twenty twenty four. Clearly, 2024 was a very challenging year for Constellium on many fronts. The year began with the extreme cold weather and snow impacting operations at Muscle Shoals in January, and we experienced severe flooding at our facilities in the Valle region in Switzerland during the summer. In addition, we faced market driven headwinds starting in the second quarter last year and which became more pronounced in the second half, including demand weakness across most of our end markets and significant tightening of scrap spreads in North America. I want to thank each of our 12,000 employees for their commitment, resilience and relentless focus on serving our customers during these difficult times.

[Jean-Marc Germain, CEO & Executive Director at Constellium]

On a more positive note, I am pleased that we started up our new recycling and casting center in Novgorzeq in September, slightly ahead of schedule and below budget, and we returned $79,000,000 to shareholders through the repurchase of 4,600,000.0 shares of company stock during the year. I'm also excited to begin reporting our results in U. S. Dollars under U. S.

[Jean-Marc Germain, CEO & Executive Director at Constellium]

GAAP today and soon we will file our first annual report on Form 10 K. Now please turn to Slide eight. Before turning the call over to Jack, I wanted to give a quick update on the latest Section two thirty two tariffs and how we see the potential impact to Constellium. Before going into details on the slide, let me summarize a bit. The tariff situation is a fluid and multifaceted situation.

[Jean-Marc Germain, CEO & Executive Director at Constellium]

We see both some positive and negative impacts on our business and at this stage, we believe it presents us with various opportunities. The guidance we are giving today does not include any impacts from tariffs. Shifting to the details on the slide now. On the production side, we are mostly local for local in the regions where we operate. We have a joint venture in Canada that provides extrusions to our automotive structures business in The U.

[Jean-Marc Germain, CEO & Executive Director at Constellium]

S, and these extrusions will become more expensive under Section two thirty two tariffs. In aerospace, we ship small quantities from Europe to The U. S. To serve global OEMs, though this has a pass through today and it will not be impacted. On the metal supply side, we import some primary aluminum from Canada given the lack of smelter capacity in The US and some of these imports will become more expensive.

[Jean-Marc Germain, CEO & Executive Director at Constellium]

Commercial negotiations will be necessary to mitigate tariffs and there may be a lag in passing additional costs through. In terms of scrap now, aluminum scrap is excluded from the current scope of Section two thirty two tariffs. We purchased most of our scrap needs from dealers in The U. S. The impact on scrap from tariffs could be a net positive as it could increase the availability of scrap in The U.

[Jean-Marc Germain, CEO & Executive Director at Constellium]

S. And scrap spreads could improve with a rise in The U. S. Regional premium for aluminum. Now in terms of commercial impacts, these two could be a net positive for Constellium.

[Jean-Marc Germain, CEO & Executive Director at Constellium]

Today, around 1,000,000 tons of flat rolled aluminum imports are coming into The U. S. Tariffs will make domestically produced products more competitive and we should benefit from this. As an example, earlier this week, we announced a price increase for all flat rolled products shipped in The U. S.

[Jean-Marc Germain, CEO & Executive Director at Constellium]

We have some business in The U. S. That is priced quarterly and we should benefit as soon as the second quarter this year from the new market dynamics. The overall impact on our end markets is

[Jason Hershiser, Director of Investor Relations at Constellium]

way too

[Jean-Marc Germain, CEO & Executive Director at Constellium]

early to estimate and will The The same logic should apply in terms of impact on aluminum, though the overall impact at this time is unknown. 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 it presents us with some opportunities. With that, I will now hand

[Jean-Marc Germain, CEO & Executive Director at Constellium]

the call over to Jack for further details on our financial performance. Jack?

[Jack Guo, Senior VP & CFO at Constellium]

Thank you, Jean Marc, and thank you everyone for joining the call today. Please turn now to Slide 10 and let's focus our A and T segment performance. Adjusted EBITDA of $56,000,000 decreased 33% compared to the fourth quarter last year.

[Jack Guo, Senior VP & CFO at Constellium]

Volume was a headwind of $3,000,000 mainly due to lower TID shipments as commercial transportation and general industrial markets remained weak in the quarter. TID shipments were also impacted at Ballet as a result of the flood. Shipments in aerospace were stable versus the same quarter last year and demand in military aircraft remained healthy. Price and mix was a headwind of $19,000,000,000 due to a softer pricing environment in TID and weaker aerospace mix in the quarter. During the fourth quarter, A and T had a negative impact of $5,000,000 at LA as a result of the flood.

[Jack Guo, Senior VP & CFO at Constellium]

For the full year 2024, A and T generated adjusted EBITDA of $285,000,000 a decrease of 19% compared to a record 2023. The drivers of the full year performance were similar to those in the fourth quarter, except cost was a tailwind of $11,000,000 for the full year and the valet impact was a headwind of $13,000,000 Now turn to slide 11, let's focus on our Park segment performance. Adjusted EBITDA of $56,000,000 decreased 34% compared to the fourth quarter last year. Volume was a tailwind of $1,000,000 as higher shipments in packaging were mostly offset by lower shipments in automotive. Packaging shipments increased 4% in the quarter versus last year as demand remained healthy in both North America and Europe.

[Jack Guo, Senior VP & CFO at Constellium]

Automotive shipments decreased 10% in the quarter with weakness in both North America and Europe. Price and mix was a headwind of $5,000,000 mainly as a result of weaker mixing a quarter. Costs were a headwind of $24,000,000 as a result of unfavorable metal costs given tighter scrap spreads in North America, partially offset by lower operating costs. As we said in the past, the negative impact of tighter scrap spreads in North America is $15,000,000 to $20,000,000 per quarter given the current market conditions. The fourth quarter of twenty twenty three also benefited from energy related grants in Europe which did not repeat to the same degree in 2024.

[Jack Guo, Senior VP & CFO at Constellium]

For the full year 2024, Park generated adjusted EBITDA of two forty two million dollars a decrease of 21% compared to 2023. The drivers of the full year performance were similar to those in the fourth quarter. Now turn to Slide 12 and let's focus on the AS and I segment. Adjusted EBITDA of $4,000,000 decreased 83 compared to the fourth quarter of last year. Volume was a $7,000,000 headwind as a result of lower shipments in automotive and industry extruded products.

[Jack Guo, Senior VP & CFO at Constellium]

Automotive shipments were down 12% in the quarter with weakness in both North America and Europe. Industry shipments were down 17% in the quarter versus last year as weakness persisted in Europe. Industry shipments were also impacted at LA as a result of the flood. Price and mix was a $2,000,000 tailwind in the quarter while costs were a headwind of $2,000,000 FX and other was also a headwind of $2,000,000 in the quarter. During the fourth quarter, AS and I had a negative impact of $10,000,000 at Ballet as a result of the flood.

[Jack Guo, Senior VP & CFO at Constellium]

For the full year 2024, AS and I generated adjusted EBITDA of 74,000,000 a decrease of 43% compared to 2023. Volume, FX, and other were similar impacts in the full year as the fourth quarter, though for the full year, costs were a tailwind of $20,000,000 price and mix was a headwind of $25,000,000 and the valet impact was a headwind of $20,000,000 It is not on the slide here, but our holdings and corporate expense for the full year in 2024 was $33,000,000 up $2,000,000 from last year. We currently expect holdings and corporate expense to run at approximately $40,000,000 in 2025. 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.

[Jack Guo, Senior VP & CFO at Constellium]

Other metal costs, we experienced a dramatic tightening of scrap spreads in North America in 2024. We expect this to continue throughout 2025 and will create headwinds on metal costs, primarily impacting our park segment as it uses a significant amount of used beverage cans and other types of scrap. For energy, our 2025 costs are moderately more favorable compared to 2024, although energy prices remain above historical averages. Other inflationary pressures have eased to more normal levels. 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 reducing headcounts and other labor costs, reducing non metal procurement spending, optimizing maintenance costs by minimizing the use of outside contractors, and cost reduction efforts across many other categories.

[Jack Guo, Senior VP & CFO at Constellium]

We have demonstrated strong cost performance in the past and we're confident in our ability to right size our cost structure for the current demand environment. You saw some of the benefits in our 2024 results and the run rate benefit should be even more in 2025. Now let's turn to slide 13 and discuss the free cash flow. Free cash flow was negative $100,000,000 for the full year in 2024, although this includes a negative $45,000,000 impact that that lay as a result of the flood, which is net of the $45,000,000 of insurance proceeds we received in 2024. This also excludes $85,000,000 of cash we received for the collection of deferred purchase price receivables, which is a result of our conversion from IFRS to US GAAP at the corresponding accounting treatment.

[Jack Guo, Senior VP & CFO at Constellium]

The technical accounting treatment for the collection of deferred purchase price receivables does not change the economic reality or free cash flow generation historically for Constellium. The deferred purchase price receivables are related to some of our previous factoring arrangements in Europe. We have recently amended these arrangements and all cash received under the arrangements will be recorded in operating cash flows going forward. As Jean Marc mentioned, free cash flow excluding the impact of the valet flood and including cash received for collection of deferred purchase price receivables would have been positive $30,000,000 in 2024. Looking at 2025, we expect to generate free cash flow in excess of $120,000,000 for the full year.

[Jack Guo, Senior VP & CFO at Constellium]

We expect CapEx to be approximately $330,000,000 this year, which is around $70,000,000 lower compared to 2024. We expect cash interest of approximately $120,000,000 and cash taxes of approximately $40,000,000 and we expect working capital and other to be a modest source of cash for the full year. As Jean Marc mentioned previously, we continued our share buyback activities in the quarter. During the quarter, we repurchased 1,600,000.0 shares for $18,000,000 bringing our 2024 total to 4,600,000.0 shares for $79,000,000 We have approximately $221,000,000 remaining in our existing share repurchase program and we intend to use a large portion of the free cash flow generated this year for the program. Now let's turn to slide 14 and discuss our balance sheet and liquidity position.

[Jack Guo, Senior VP & CFO at Constellium]

At the end of the fourth quarter, our net debt of 1,800,000,000 was up $72,000,000 compared to the end of twenty twenty three, partially as a result of the valet flood. Our leverage was 3.1 times at the end of twenty twenty four were up 0.8 times versus the end of twenty twenty three. If you exclude the Vallee flood impact, leverage was 2.9 times at the end of the year. We're committed to maintaining our leverage in the target leverage range of 1.5 to 2.5 times over time. As you can see in our debt summary, we have no bond maturities until 2028 and our liquidity remains strong at $727,000,000 as of the end of twenty twenty four.

[Jack Guo, Senior VP & CFO at Constellium]

With that, I will now hand the call back to Jean Marc.

[Jean-Marc Germain, CEO & Executive Director at Constellium]

Thank you, Jack. Let's turn to Slide 16 and discuss our current end market outlook. 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, in the short term, many of these markets are facing headwinds. Turning first to the aerospace market.

[Jean-Marc Germain, CEO & Executive Director at Constellium]

Commercial aircraft backlogs 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 the long term fundamentals driving aerospace demand remain intact, including growing passenger traffic and greater demand for new, more fuel efficient aircraft. Demand remains stable in the business and regional jet markets and healthy for military aircraft.

[Jean-Marc Germain, CEO & Executive Director at Constellium]

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 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. Let's turn now to automotive.

[Jean-Marc Germain, CEO & Executive Director at Constellium]

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 softened in the near term and demand in Europe remains weak, particularly in the luxury and premium vehicle and electric vehicle segments where we have greater exposure. 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 light weighting and increased fuel efficiency will continue to drive the demand for aluminum products. As a result, we remain positive in this market for the longer term in both regions despite the weakness we are seeing today.

[Jean-Marc Germain, CEO & Executive Director at Constellium]

As you can see on the page, these three core end markets represent over 80% of our last twelve months revenue. Turning lastly to other specialties. In North America, demand appears to have stabilized, albeit at low levels and demand remains weak in Europe. We have experienced weakness across most specialties markets for more than two years now, though we are beginning to see some green shoots in certain TID markets in North America. As a reminder, these 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.

[Jean-Marc Germain, CEO & Executive Director at Constellium]

As Jack mentioned, we continue to work hard to adjust our cost structure to current demand environment, which will put the businesses in an even better position when the industrial economies do recover. 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 is an asset for the company in any environment and that the current conditions will pass. Turning now to Slide 17, based on our current outlook, including the current end market conditions I just described, for 2025, we are targeting adjusted EBITDA excluding the non cash metal price lag in the range of $600,000,000 to $630,000,000 and free cash flow in excess of $120,000,000 I'm also excited to establish today new long term targets. For 2028, we expect to achieve adjusted EBITDA excluding the non cash metal price lag of $900,000,000 and free cash flow of $300,000,000 On the slide here, we provided a bridge to show the major drivers to achieving $900,000,000 of adjusted EBITDA. Our 2028 target incorporates a recovery in the valley following the flood, which is well underway and an improvement of Muscle Shoals operational performance, which we have demonstrated recently in the past several months.

[Jean-Marc Germain, CEO & Executive Director at Constellium]

It also incorporates the benefits from our previously announced return seeking investments, which include cost saving investments like the recycling and casting center in Novgorisac and the Cast House investments in Versatrol and in Ravenswood, as well as growth projects like the new Airware Cast House in Issuar and the Battery Foil investment with Lotte in Zengen. All of these projects, as well as some other smaller investments, are included in our existing CapEx umbrella. We have also assumed additional market growth for each of our end markets, though the growth rate we assumed are rates which are generally below current industry estimates. As we have demonstrated in the past, we will continue to be disciplined on price. Also, as we have demonstrated in the past, we expect to maintain strict cost control to mitigate future inflationary impacts through productivity gains and other cost reduction initiatives.

[Jean-Marc Germain, CEO & Executive Director at Constellium]

We have assumed the current tight scrap market in North America continues through 2028, which will lead to unfavorable metal costs, primarily in our PARP segment compared to 2024. We also assumed a contingency in our 2028 target that should help offset potential deviations from the assumptions I just described. Lastly, on the bridge, we assume no impact from tariffs and we assume also that the macroeconomic and geopolitical conditions remain generally stable, but we are used to changes. Turning lastly to Slide 18. 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.

[Jean-Marc Germain, CEO & Executive Director at Constellium]

We have demonstrated over and over again that we have the right strategy, the right teams and the right products in the right markets and that we know how to overcome crises. Our business model is flexible and resilient. Our diversified portfolio allows us to always have options in very different market conditions. We have built the balance sheet we need to both weather crisis and seize opportunities and our high value recyclable and sustainable products respond to the growing needs of our customers. We are extremely well positioned for long term success and we remain focused on executing our strategy and on shareholder value creation.

[Jean-Marc Germain, CEO & Executive Director at Constellium]

With that, operator, we will now open the Q and A session, please.

[Operator]

Our first question for today comes from Corinne Blanchard of Deutsche Bank. Your line is now open. Please go ahead.

[Corinne Blanchard, Analyst at Deutsche Bank]

Thank you. Good morning. Maybe a first question and the second will be probably around the same line. But the guidance that you guys gave, and you did a good job at giving a lot of detail right now. But can you just give us maybe a little bit more like on the key tax and food for the twenty twenty five EBITDA guidance and also for the free cash flow like maybe the cadence going into 2Q and 3Q?

[Corinne Blanchard, Analyst at Deutsche Bank]

And then my second question would be on the long term outlook. Can you walk us through the bridge from 25% to 28% and are confident should the market or should investors be in that number by '28 Thank you.

[Jean-Marc Germain, CEO & Executive Director at Constellium]

Yes. Good morning, Corin. Thank you. And I'll start and Jack, I'm sure will help me. So on your first question on the key takes and puts for 2025, so you look at the current conditions.

[Jean-Marc Germain, CEO & Executive Director at Constellium]

I mean, as we said, the conditions we experienced in the second half of twenty twenty four are continuing and we'll feel their full impact in 2025. So the, the scrap spreads, for instance, the tightening of scrap spreads were protected last year with some annual contracts. We'll get the full impact of them this coming year. We believe that automotive is also going to be very weak in 2024, especially in Europe. On the aerospace side, we see that OEMs are struggling to meet their ramp up, so that creates some elements of destocking in the supply chain, so we're quite prudent on our assumption for our own shipments in aerospace with domain OEMs.

[Jean-Marc Germain, CEO & Executive Director at Constellium]

Even though we can make up some of that with other programs like military aircraft or space as well. And then obviously the foreign exchange is not helping with the dollar strengthening of late, so that's another element. And then the valley, as Jack mentioned, I believe, we still have some costs in Q1. So all that adds up to a number which is quite, quite hefty going into 2025. Now to offset that, we had talked about, you know, all the initiatives we have in place.

[Jean-Marc Germain, CEO & Executive Director at Constellium]

We had talked about the ramp up of the recycle center in and that's still, very much underway and going well. We had talked about operational improvements in Muscle Shoals, which we were starting to see the beginning of, but now we feel very confident that, we are doing a good job there and we're back on track. We also have the repricing of our some of our contracts in aerospace which is going to benefit us starting in Q2. So, and obviously the cost savings that we have accelerated that Jack maybe can comment a bit more upon in 2025 in light of the challenging market conditions, our ambitions for cost reductions have greatly increased compared to where we were back in '24. So when all that is said and done, you see a lot of adverse headwinds on the market side, right, generally, a little bit of a weaker beginning of the year because of the valet and, especially in the time it takes to have the full benefit of, you know, cost savings.

[Jean-Marc Germain, CEO & Executive Director at Constellium]

And then you see all that being offset by the actions we had talked about. So I think that that's how I can answer your first question. I don't know, Jack, if I missed

[Jack Guo, Senior VP & CFO at Constellium]

anything or No. I think that's good. I think, obviously, in a weaker environment, as we've mentioned, we're accelerating our cost reduction efforts under Vision 25. You know, a bucket of that is in labor, that bucket of that is is outside of labor. And, you know, previously, we've indicated, you know, 50,000,000 program over three years, and we're targeting, you know, 15 to $20,000,000,000, if you will, for 2025 relative to 2024 in this environment.

[Jack Guo, Senior VP & CFO at Constellium]

We're looking at more, savings. We're looking at, you know, 50,000,000 plus of opportunities we're executing on. We're very proud of the efforts we've made so far and we'll be very focused on cost.

[Jean-Marc Germain, CEO & Executive Director at Constellium]

Yeah. So that's that's your first question. Thank you. Corinne. Do you want to move to the second one?

[Jean-Marc Germain, CEO & Executive Director at Constellium]

Let me open my loop, '24 to '20, I guess '25 to '28, right? So we '28. Yeah, so starting in '25, right? And I I'll go back to page 17. Right?

[Jean-Marc Germain, CEO & Executive Director at Constellium]

Most of the investments we're talking about the second so sorry. Let me back up. The Constellium recovery still very much in play, and most of that will, you know, is is, obviously the valley flow recovery is no more there because it happened in '24, right? So if you start in '25, that's already done. The investments are going to play out, mostly towards the end of the period in the recycling center in Napoza, is right now, but the other investments are going to contribute towards the later part of the period.

[Jean-Marc Germain, CEO & Executive Director at Constellium]

We believe that overall, the path from now to there, to '28, is pretty linear, with, some uncertainty, obviously, about how the markets recover. And, you know, one can make a case for markets recovering a bit faster. Our own assumptions internally, we believe are more prudent than what is out there. So we think, you know, some could say, well, it should improve faster, but we've been burned recently. So we tend to be prudent.

[Jean-Marc Germain, CEO & Executive Director at Constellium]

You could also say that, and that's not in our guidance, that tariffs in The US are going to be favorable to domestic suppliers, so that could accelerate some of that process. But anyway, we think we're gonna be quite, we like to be quite prudent. And then on the, I think, the bigger, red box you see on the scrap spreads, we believe that once we've taken the brunt of the scrap spread tightening impact this year, this should be kind of stable in the future. So we're not banking really on an improvement of the scrap spread. The reason we're not thinking that they can go worse is because at some point it just becomes indifferent whether you recycle aluminum or you or you buy sheeting gut from primary aluminum.

[Jean-Marc Germain, CEO & Executive Director at Constellium]

And that, I think, you know, if you look at the scrap market, it's a worldwide market at some point. If scrap spreads become too tight in The US, it will create imports of scrap into The US like that has happened in the past. So we're at a historically tight scrap levels here in The US. I don't think we've got much of a risk of that getting worse. So that's how I can think about the kind of 25 to 28 pre regular cadence.

[Jean-Marc Germain, CEO & Executive Director at Constellium]

And obviously, we know that the market can throw us some curveballs from time to time, but we are trying to stay ahead of it.

[Corinne Blanchard, Analyst at Deutsche Bank]

Thank you. Maybe if I just can come back very quickly on the 25 guide. I think something that I've been asking since this morning is like, how should we think about the guidance if it had been given in euro? So what is the gap impact? Like we're trying to see like what the factor in any impact and trying to see like what could have been the number also, you know, if you are to make the switch or so.

[Jack Guo, Senior VP & CFO at Constellium]

Yeah. Corey, maybe we can take this offline. I mean, we're a US dollar company now, and we're thinking in US dollar terms.

[Jean-Marc Germain, CEO & Executive Director at Constellium]

We But

[Jack Guo, Senior VP & CFO at Constellium]

we can help you with the bridge potentially afterwards.

[Corinne Blanchard, Analyst at Deutsche Bank]

That's fair. Okay. Thank you.

[Operator]

Thank you. Our next question comes from Katja Yanchik from BMO Capital Markets. Your line is now open. Please go ahead.

[Katja Jancic, Analyst at BMO Capital Markets]

Hi. Thank you for taking my questions. Maybe going back to the '25 guide, is it fair to assume given that near term market is pretty challenging that the waiting is going to be more second half relative to first half?

[Jack Guo, Senior VP & CFO at Constellium]

I mean, that's generally a fair well, I would say the way I would kind of look at it is I would look at first quarter and then beyond first quarter. You know, first quarter, Jean Marc already alluded to. You know, we have it's first of all, seasonably, due to seasonality, it is weaker comparatively, and will have some impact from, remaining impact from the flood at LA and, you know, as we progress through into the year we'll see, you know, some of the benefits to kicking more, like the cost initiative, like the Muscle Shoals improvement, so it will be stronger in the middle of the year.

[Katja Jancic, Analyst at BMO Capital Markets]

So it's more like first quarter relative to the rest of the year, right?

[Jack Guo, Senior VP & CFO at Constellium]

Correct.

[Jean-Marc Germain, CEO & Executive Director at Constellium]

And then, Katja, even though it's not in our guidance And

[Katja Jancic, Analyst at BMO Capital Markets]

then just on the

[Jean-Marc Germain, CEO & Executive Director at Constellium]

Sorry. Katja, I just wanted to add, even though it's not in our guidance, we have to look at what the tariffs may mean for us. And as I said, tariffs, by and large, we believe the way they are structured today should create opportunities for us, so that's more in the second half of the year, obviously.

[Katja Jancic, Analyst at BMO Capital Markets]

And is similarly is this similar for the free cash flow generation?

[Jack Guo, Senior VP & CFO at Constellium]

So, it's it's a good question. In the first quarter is when we're building up working capital for the busier seasons, and typically, you know, free cash flow is negative in the first quarter due to that reason. And, but you remember we started a number of cash initiatives last year to release cash from from working capital due to the weakness weaknesses we've experienced. And there was a kinda there's typically a lag in terms of in terms of when we see the benefits from those actions. We saw some benefits in the fourth quarter last year, but we'll see the remaining benefits in the first quarter of this year to help offset the buildup of working capital, if you will, if that makes sense.

[Katja Jancic, Analyst at BMO Capital Markets]

Yeah. And and, Jack, you mentioned, you know, a lot of the free cash flow will be used for share buybacks. But but given the, you know, the the timing, is this again more maybe initially first Q, we don't really see an acceleration and then we see an acceleration later in the year?

[Jack Guo, Senior VP & CFO at Constellium]

So I think we're comfortable with our leverage, and we're very confident in our, you know, liquidity position, and we're, you know, confident in our free cash flow generation. So when you put it all together, we'll continue to be quite hands off, and just let the program run.

[Katja Jancic, Analyst at BMO Capital Markets]

Okay. I'll hop back into the queue. Thank you.

[Jack Guo, Senior VP & CFO at Constellium]

Thank you.

[Operator]

Thank you. Our next question for today comes from Bill Peterson of JPMorgan. Your line is now open. Please go ahead.

[Bill Peterson, Analyst at JPMorgan Chase]

Yes. Hi, good morning or good afternoon, John, Mark and Jack. I have a few questions that I'd like to kind of come back to on the demand environment. And I guess how that impacts the outlook for the year $600,000,000 to $630,000,000 So I guess speaking about the market aspects themselves, hoping you can go through the key assumptions for market growth and also I guess your own shipment growth and mix across the bigger markets like aerospace, packaging, auto and other. For example, Aero, we're kind of aware of the destocking, but are you assuming shipments will remain kind of weak for the year and mix will be unfavorable?

[Bill Peterson, Analyst at JPMorgan Chase]

In the case of auto, you talk about weakening U. S, does that mean we should think of that going down this year, and then maybe in Europe just remaining stable at a low level? Kind of similar for industrials, are you just assuming flat given it's just already it already has been weak in Europe? Just trying to get a better understanding of how these end markets should impact this overall guide and I guess how that could then then translate into reporting segments, EBITDA, you know, flat, up, down, so forth.

[Jack Guo, Senior VP & CFO at Constellium]

Okay. So it's a it's a really good question, Bill. I I don't think we wanna be too prescriptive on this one, but, you know, generally speaking, if you look at aerospace, we expect stable type of environment, although mix could be weaker. As we've said in a weaker aerospace environment, it caused us to, you know, push out some of the more profitable volume, to later. Right?

[Jack Guo, Senior VP & CFO at Constellium]

So it you expect to see unfavorable mix, but stable from a volume perspective for aerospace. We do believe automotive will continue to be weak, this year if you were to look at, the latest industry, you know, build rates for for the year, in both North America and Europe, they're expected to be down versus 2024 and that will impact our automotive business. If you look at TID, I think there, you know, there's some opportunities in TID, especially in North America in light of the tariff situation, so we do expect that to improve. And packaging, we do expect continued improvement in the packaging market. And did I forget any other markets?

[Jean-Marc Germain, CEO & Executive Director at Constellium]

No. And I think also in TID in Europe, just the fact that we are not flooded anymore and we've resumed production, that's gonna help us as well out of our CR facility.

[Jack Guo, Senior VP & CFO at Constellium]

Yeah.

[Jean-Marc Germain, CEO & Executive Director at Constellium]

So Good point.

[Bill Peterson, Analyst at JPMorgan Chase]

Great. Thanks for that additional context for the full year guide. Wanted to come back to scrap, both kind of from a near term perspective, sort of 2025 as well as the bridge for 2028. So first in the near term, I guess is this sort of $15,000,000 to $20,000,000 per quarter discussed in the 4Q bridge the right way to think about the headwind for 2025? And then over the midterm, and I guess on your bridge slide, can you break down, I guess, the impacts of scrap versus foreign exchange?

[Bill Peterson, Analyst at JPMorgan Chase]

And I guess how should we think about scrap spreads in other regions you operate in, particularly in Europe, acknowledging maybe better fundamental recycling rates and overall environment maybe potentially offset by weaker industrial activity?

[Jean-Marc Germain, CEO & Executive Director at Constellium]

Yeah, I'll start Bill and Jack will help me as well. So, we think that the impact of scrap spreads is really a '25 event and then we do not assume really an improvement going forward. It is we believe it is mostly a North American problem and when I look at what scraps we're buying in Europe today, yes, it's a little bit tighter but nothing really to write home about and long term as you pointed out there is more and more recycling happening in Europe right more and more collection of scrap both you know industrial and consumer those consumer scrap. So I think that's good for the you know the balance in Europe and we feel that we are well covered both in the short term and the long term in Europe. North America as I mentioned, it is a painful situation.

[Jean-Marc Germain, CEO & Executive Director at Constellium]

The scrap spreads are very tight. Would be if they're going to stay very tight but you know from a variant standpoint once we're past the 25 we think it's not going to have much of an impact. And in terms of foreign exchange, Jack will help me I'm sure But, the the dollar is stronger now than it was on average last year and the year before, actually. So that's, that's, you know, reflected in our guidance. We don't make an assumption that the dollar is gonna change much from where it's at 104, 1 hundred and 5, right?

[Jean-Marc Germain, CEO & Executive Director at Constellium]

So we don't assume it's going to be different in 'twenty five, 'twenty six, 'twenty seven, 'twenty eight, right? It's pretty flat. Does that answer your question, Bill?

[Bill Peterson, Analyst at JPMorgan Chase]

Okay. Thanks for that.

[Bill Peterson, Analyst at JPMorgan Chase]

And I guess maybe that last point is if yes, no, it largely doesn't. And I guess in the last point, if euro was to become stronger over the coming years, that actually puts to the tailwind, I guess, is the point.

[Jean-Marc Germain, CEO & Executive Director at Constellium]

That is correct, yes. It creates a tailwind. Our cash flow standpoint is not much different, right? The translation effect is a tailwind, yes.

[Jack Guo, Senior VP & CFO at Constellium]

Thank

[Operator]

you. Our next question comes from Timna Tanas of Wolfe Research. Your line is now open. Please go ahead.

[Timna Tanners, Analyst at Wolfe Research LLC]

Hey, good morning. I wanted to ask a few higher level questions if we could take a step back. So I know we just talked about the scrap dynamic in The U. S. But with regard to that being sustained with new capacity starting up this year, putting more pressure or sustained pressure on scrap, like what can you do to prepare longer term, you pass through the Midwest premium, which is obviously exploded.

[Timna Tanners, Analyst at Wolfe Research LLC]

Is there just no way to pass through scrap in the short term? And in the longer term, can you switch up your inputs? And then same question, short term, long term responses that Constellium can contemplate in terms of EU auto. If EU auto is just sustainably lower for the longer, can you switch some of that capacity more longer term? And then the third short term, long term question is really on the potential for switching away from aluminum given these higher prices with Coca Cola talking about that topic.

[Timna Tanners, Analyst at Wolfe Research LLC]

So just those are three questions. I'm sorry. I can repeat if you want, but I'd love to get

[Jean-Marc Germain, CEO & Executive Director at Constellium]

your thoughts. No, that's fine. Good. Thank you, Tim. Good morning.

[Jean-Marc Germain, CEO & Executive Director at Constellium]

So, on the scrap dynamics, right? So there is a specific pressure on used beverage cans, but that's, you know, it's a very large portion of what we buy, but it's I don't want to give an exact number, but around 50% of what we buy, right? So there's other types of scrap and there's plenty of other scraps that we can use. And the other factor is as the Midwest premium increases and that the, as The US economy becomes stronger relative to the rest of the world, which is happening right now, we end up in a place where imports of scrap, as I mentioned earlier, become more attractive. So that also will put a dampening effect on further scrap tightening.

[Jean-Marc Germain, CEO & Executive Director at Constellium]

Then, as you mentioned, you know, at some point, if it is so expensive, then people will look at, okay, well, there's a better option, which is buying sheeting gut from primary smelters, and, that will put also a damper on how high the crop prices can go. So all that we believe, we we fact that, all in, at a pretty high level. So we we believe that the projections we have, you know, that are in, both our 609 targets, reflects current market conditions that are quite unusual and we do not believe are sustainable. And we will see. So maybe there's an upside there.

[Jean-Marc Germain, CEO & Executive Director at Constellium]

And I think you had a question also on, so I think I that was a question on scrap, right? The question on EU auto. Yes. So, the first thing to do is, for us, is we're not going to invest growth capsule in automotive, okay? And we have not, recently, and we are not going to do that anytime soon given where where the markets are and the uncertainty.

[Jean-Marc Germain, CEO & Executive Director at Constellium]

So now it's a matter of how do we best use the capacity we have. As you know, you know, 80% of the assets, if not more, that make auto are used also for other products like, can sheet to, to mention. And we believe that, you know, we have this opportunity to make more can sheet. We, and we have it both in North America and Europe. So that's very much, in play for us, and we are fully ready to to do that.

[Jean-Marc Germain, CEO & Executive Director at Constellium]

If anything, last year, we passed on some volume opportunities, quite significant in Ganshet because we couldn't produce for plenty of reasons starting with the snow event in the Muscle Shoals and then some operational issues we had that we don't have anymore. So we believe we are we're able to repurpose capacity quite efficiently and then obviously if there's no or limited business for automotive, well, we'll have to be very strict in how we manage our costs on the auto finishing lines which are, you know, an important but not a huge part of our business. And then finally, you mentioned, you know, well, aluminum is going to be so expensive that maybe people will switch away from, from aluminum. So, well, steel is getting expensive too, by the way. Historically, it's quite interesting to note that, you know, people look at aluminum as being volatile because it's, coated daily.

[Jean-Marc Germain, CEO & Executive Director at Constellium]

And plastics and, steel are less transparent. Actually, when you look at the volatility of input materials, plastics and steel are more volatile than aluminum, number one. So, so as a user, and I, I've got to make a choice of what I'm going to use, I get more stability and I can hedge it, by the way, the volatility, which I much more difficult for the other ones. So I got a material that I better know how it's gonna what it's gonna cost. The second point to remember is that aluminum, even today, you know, even if you were to put the Midwest price at, Midwest, premium, sorry, at a thousand dollars plus a ton, it is still less expensive than it was in 02/2007.

[Jean-Marc Germain, CEO & Executive Director at Constellium]

And there was no change in the packaging mix happening in '2 you know, from 02/2005 to 02/2008 or 02/2006 to 02/2007 because of changes in the price of material. And finally, I'll submit that it is a very, very small part of the package of the finished product, right? And, there's many more choices than just how much the price of that, you know, beverage can is going to be next quarter that goes into the choice of packaging. I mean, you've got the whole infrastructure, the filling lines that you gotta handle and they require capital. You got the distribution channels, you got consumer preferences, you got the shelf space.

[Jean-Marc Germain, CEO & Executive Director at Constellium]

All these questions are and then, and then more, right? All these questions that need to be addressed. So I don't wanna be casual and say that, when James Quincy says well, we can also use other materials, it doesn't mean it, but I think it takes a very substantial shift in relative competitiveness of materials for such changes to happen, and then they happen at a slow pace if they do. Did I answer your questions, Dimah? No.

[Timna Tanners, Analyst at Wolfe Research LLC]

That's helpful, Denmark. Thanks for the data. Thank you.

[Jean-Marc Germain, CEO & Executive Director at Constellium]

Sure. Thank you. You're welcome.

[Operator]

Thank you. At this time, we currently have no further questions. So I'll hand back to John Mark for any further remarks.

[Jean-Marc Germain, CEO & Executive Director at Constellium]

Well, thank you everybody again for your interest in Korsalya. As you can tell, 2024 was not a fun year for us. It was disappointing in terms of outcome, But I think, we can say and I hope we've convinced some of you that we're on a strong footing to resume our growth and we've got a clear path ahead of us. And the path ahead of us relies on things that are really a lot of them. A lot of them are under our control.

[Jean-Marc Germain, CEO & Executive Director at Constellium]

So we're excited about, the years coming ahead of us and we look forward to updating you on our process in the next, quarter. Thank you so much, everybody. Bye bye.

Participants

Executives

• Jason Hershiser, Director of Investor Relations
• Jean-Marc Germain, CEO & Executive Director
• Jack Guo, Senior VP & CFO

Analysts

• Corinne Blanchard, Analyst at Deutsche Bank
• Katja Jancic, Analyst at BMO Capital Markets
• Bill Peterson, Analyst at JPMorgan Chase
• Timna Tanners, Analyst at Wolfe Research LLC