Constellium SE Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Safety: Recordable case rate was 1.9 per million hours worked for the first nine months of the year, still higher than desired.
• Financial Results: Shipments were 352,000 tons, down 5% compared to the third quarter of 2023. Revenue was EUR 1.6 billion, down 5% year-over-year. Net income was EUR 3 million in the quarter compared to EUR 64 million in the third quarter of 2023. Adjusted EBITDA was EUR 110 million, including negative impacts from the Valais flood and noncash metal price lag.
• End Markets: Aerospace backlogs were robust but supply chain challenges caused demand to shift; automotive demand weakened in North America and Europe; packaging demand remained healthy; other specialties saw sharp declines.
• New Facilities: The new recycling center and casting center in Neuf-Brisach started up in September, slightly ahead of schedule and below budget.
• Valais Flood: The flood in June impacted operations. Partial resumption of operations at Valais was expected by the end of November 2024, with full ramp-up expected by the first quarter of 2025. Financial impact for 2024 was expected to be EUR 30-40 million in adjusted EBITDA and EUR 60-70 million in free cash flow.

Segment Performance

• PARP: Segmented EBITDA was EUR 61 million in the third quarter of 2024, down 9% compared to the third quarter of 2023. Shipments in PARP were stable. Packaging shipments increased 3% while automotive shipments decreased 6%. Costs were a headwind of EUR 6 million due to unfavorable metal costs.
• A&T: Adjusted EBITDA was EUR 47 million, a 41% decrease compared to the third quarter of 2023. Volume was a headwind due to lower TID shipments. Price and mix were a headwind of EUR 12 million, and there was a negative impact of EUR 7 million at Valais due to the flood.
• AS&I: Adjusted EBITDA was EUR 10 million, a 61% decrease compared to the third quarter of 2023. Volume was a headwind, price and mix were a headwind of EUR 8 million, and there was a negative impact of EUR 10 million at Valais due to the flood.

Guidance

• Full-year 2024 adjusted EBITDA was expected to be in the range of EUR 580 million to EUR 600 million, excluding a one-time flood impact of EUR 30 million to EUR 40 million. The adjusted EBITDA target of over EUR 800 million was delayed pending market recovery. Key drivers included the Neuf-Brisach center ramping up, Vision ‘25 cost reductions, aerospace contract re-pricing, and improvements at Muscle Shoals.

Risks

• Market demand weakness in multiple end markets such as automotive, industrial, and certain specialties.
• Impact of the Valais flood on operations and financials, including ongoing recovery and potential future costs.
• Fluctuations in metal and energy costs, affecting the business model.
• Supply chain challenges in aerospace causing temporary demand shifts.

Q: Can you remind us how much the non-market related EBITDA drivers could add to EBITDA when combined?

A: The Recycle Center in Neuf-Brisach could add EUR 35 million to EUR 40 million, Vision ‘25 cost reductions north of EUR 25 million, aerospace contract re-pricing in between EUR 15 million and EUR 25 million, and improvements at Muscle Shoals. Adding these up, it could be north of EUR 100 million. Longer term, four investments could generate close to EUR 100 million of additional EBITDA.

Q: Does the EUR 25 million cost reduction of Vision ‘25 include incremental cost reductions mentioned today?

A: Our objective is to rightsize the cost structure. The Vision ‘25 program was targeting EUR 50 million of savings over three years, and we are accelerating additional cost reduction efforts on top of that.

Q: How should we think about the margin compression in aerospace and signs of recovery?

A: Aerospace has temporary supply chain challenges causing margin compression due to a less rich mix. Long-term fundamentals remain intact with growing passenger traffic and demand for fuel-efficient aircraft. No immediate recovery signs seen yet but long-term outlook is positive.

Q: How is the sharp decline in North America industrial markets related to inventory and customers?

A: There is significant inventory piling up in the supply chain as aircraft production is delayed due to supply chain issues. Customers were not lean, leading to a correction in demand.

Q: About the Valais flood impact split and free cash flow.

A: The flood impact split is two thirds at AS&I and one third at A&T. Free cash flow guidance for 2024 is not provided due to timing uncertainties in working capital release and other moving pieces