Constellium (ticker: NYSE:CSTM) showcased a strong financial performance in their Fourth Quarter and Full-Year 2023 earnings call. The company not only reported a record adjusted EBITDA of €171 million for the fourth quarter but also announced a significant share repurchase program. With a net income of €11 million in Q4 and €129 million for the full year, Constellium generated substantial free cash flow and reduced net debt, positioning themselves for further growth and shareholder returns in the coming year.
Key Takeaways
- Constellium achieved a record adjusted EBITDA of €171 million in Q4 and €713 million for the full year.
- Free cash flow reached €170 million in 2023, and net debt decreased to €1.7 billion.
- A share repurchase program of up to $300 million is set to commence in the first half of 2024.
- The company successfully managed inflationary pressures through pricing power and cost control.
- Positive end market outlook, with growth expected in canstock and packaging markets.
- Constellium anticipates a free cash flow exceeding €130 million in 2024, with an adjusted EBITDA target of €740-770 million.
Company Outlook
- Constellium sets an adjusted EBITDA target for 2024 at €740-770 million and expects to generate over €800 million in 2025.
- The company plans to use a large portion of the free cash flow for share repurchases.
- Growth is anticipated in the canstock and packaging markets, with strong demand in the aerospace sector.
- Constellium aims to maintain financial flexibility and a leverage ratio within the 1.5x to 2.5x range.
Bearish Highlights
- The company acknowledged cost challenges expected in 2024, describing it as a transition year.
- Weakness was noted in the European market, particularly with German OEMs.
Bullish Highlights
- Energy costs for 2024 have been secured at more favorable levels.
- Strong aerospace demand is expected to continue in 2024 and 2025.
- Constellium is confident in the scrap supply to meet growing demand, particularly in the U.S. and Europe.
Misses
- Specific details on the few million dollars of EBITDA missed in Q4 were not provided.
Q&A Highlights
- CEO Jean-Marc Germain expressed confidence in the company's future and the planned share repurchase program.
- Updates on the share repurchase program are expected to be provided in April.
Constellium's performance in 2023 reflects a strategic focus on pricing and cost management to combat inflationary pressures. The company's ability to secure energy at favorable rates and their strong cost performance have contributed to their solid financial results. With plans to ramp up their recycling center and operational improvements, Constellium is poised for continued growth and profitability. The company's balanced capital allocation and openness to strategic M&A opportunities further underscore their commitment to creating shareholder value. Despite challenging market conditions, Constellium's proactive measures and positive market outlook suggest a robust path ahead.
InvestingPro Insights
Constellium's (ticker: CSTM) recent financial achievements and strategic initiatives are underscored by a mix of encouraging and cautionary real-time data from InvestingPro. With a market capitalization of $2.86 billion and a Price/Earnings (P/E) ratio of 20.43, the company is positioned as a significant player in the metals sector. Notably, the adjusted P/E ratio for the last twelve months as of Q4 2023 stands at 21.16, reflecting the market's valuation of the company's earnings.
An InvestingPro Tip highlights Constellium's high shareholder yield, which aligns with the company's announcement of a share repurchase program, indicating a focus on returning value to shareholders. This is particularly relevant as the company is trading near its 52-week high, with the price at 93.75% of this peak. While the company does not pay a dividend, the repurchase program and stock performance may be attractive to investors seeking capital appreciation.
However, it's worth noting that Constellium has weak gross profit margins, with the latest data showing a gross profit margin of 9.81%. This could be a point of concern for investors and may require ongoing management attention to improve profitability.
For readers interested in a deeper dive into Constellium's financials and future prospects, there are additional InvestingPro Tips available, offering insights such as analysts' profitability predictions for the year and the company's performance over the last five years. To access these insights and more, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro. There are 6 additional InvestingPro Tips listed for Constellium, which could provide invaluable context for investors considering this stock.
Full transcript - Constellium Nv (CSTM) Q4 2023:
Operator: Hello, and welcome to the Constellium Fourth Quarter and Full-Year 2023. My name is Elliot, and I'll be coordinating your call today. [Operator Instructions] I would now like to hand over to Jason Hershiser, Director of Investor Relations. The floor is yours. Please go ahead.
Jason Hershiser: Thank you, Elliot. I would like to welcome everyone to our fourth quarter and full-year 2023 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&A session. 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. 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. 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. 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 IFRS disclosures. I would now like to hand the call over to Jean-Marc.
Jean-Marc Germain: Thank you, Jason, and good morning, good afternoon, everyone. Thank you for your interest in Constellium. Let's begin on Slide 5. I want to start by thanking each of our 12,000 employees for their commitment and relentless focus on safety, our number one priority. Our recordable case rate this year of 1.95 per million hours worked was slightly higher than last year, but I am pleased to report that we continue to deliver best-in-class safety performance. Our safety journey is never complete, and we all need to remain focused on this critical priority every day. We remain fully committed to achieving our safety target to reduce our recordable case rate to 1.5 by 2025. Now let's turn to Slide 6 and discuss the highlights from our fourth quarter performance. Shipments were 336,000 tons, down 9% and compared to the fourth quarter of 2022 due to lower shipments in each of our segments. Revenue of €1.6 billion decreased 13% compared to last year as improved price and mix was more than offset by lower shipments and lower 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. Our value-added revenue, which reflects our sales, excluding the cost of metal was €681 million, down 2% compared to the same period last year. Our net income of €11 million in the quarter compares to net income of €30 million in the fourth quarter of last year. As you can see in the bridge on the top right, adjusted EBITDA was €171 million in the quarter, up 15% compared to last year and in line with our prior guidance. Also, we extended our track record of consistent free cash flow generation with €58 million in the quarter. The combination of pricing power, improved mix and solid execution by our team drove strong results in the quarter, which Jack will discuss later in more detail. Now turn to Slide 7 for the full-year highlights. For the full-year, shipments were 1.5 million tons or down 6% compared to 2022. Revenue of €7.2 billion was down 11% as improved price and mix in each of our segments was more than offset by lower shipments and lower metal prices. Our net income of €129 million compared to net income of €308 million in 2022. As a reminder, last year included €154 million related to the recognition of deferred tax assets that were previously unrecognized. Adjusted EBITDA was €713 million or up 6% compared to last year. This performance is a record for the company and a record for our A&T segment. We delivered our fifth consecutive year of positive free cash flow with a total of €170 million in 2023. We achieved adjusted return on invested capital of 11.3% in 2023, which is up 30 basis points compared to last year. As you can see on the bottom right of the slide, we finished 2023 with leverage of 2.3x or down half a term from the end of 2022. Overall, I am very proud of our fourth quarter and full-year 2023 performance. We demonstrated our pricing power, again, by delivering record adjusted EBITDA and strong free cash flow in 2023. I am also pleased to announce today that our Board has authorized a share repurchase program of up to $300 million that expires in December 2026. We expect to begin the program in the first half of this year. Now that were within our target leverage range, returning capital to our shareholders is an important part of our strategy moving forward, and we believe it will help drive shareholder value creation. We look forward to updating you on our progress each quarter. With that, I will now hand the call over to Jack for further details on our financial performance.
Jack Guo: Thank you, Jean-Marc, and thank you, everyone for joining the call today. Please turn now to Slide 9. Value-added revenue was €681 million in the fourth quarter of 2023, down 2% compared to the same quarter last year. Looking at the fourth quarter, volume was a headwind of €44 million due to lower shipments in each of our segments. Price and mix was a tailwind of €73 million compared to the same period last year, while metal impacts were a headwind of €10 million. The balance of the change was largely due to the sale of our German extrusion business and unfavorable FX translation. For the full-year 2023, the VAR drivers were similar. There are two important [takeaways] from this slide. First, for the full-year 2023, we grew our value-added revenue by 7% compared to 2022. And second, we continue to have pricing power. Price and mix and price specifically continues to be the biggest increment of our year-over-year variance and helped us offset significant inflationary pressures. Now turn to Slide 10. And let's focus on our P&ARP segment performance. Adjusted EBITDA of €82 million increased 16% compared to the fourth quarter last year. Volume was a headwind of €10 million with higher shipments in automotive, more than offset by lower shipments in packaging and specialty rolled products. Automotive shipments increased 2% in the quarter despite some impact from the UAW strike early in the quarter. Packaging (NYSE:PKG) shipments decreased 8% in the quarter versus last year. Within packaging, canstock shipments were up slightly in the quarter versus last year, but more than offset by lower shipments of specialty packaging in Europe. Price and mix was a tailwind of €21 million, primarily on improved contract pricing, including inflation-related pass-throughs. Costs were a tailwind of €2 million as favorable metal costs, inflation energy-related government grants more than offset higher operating costs in the period. FX translation, which is non-cash, was a headwind of €2 million in the quarter. For the full-year 2023, P&ARP generated adjusted EBITDA of €283 million, a decrease of 13% compared to 2022. The drivers of the full-year performance were similar to those in the fourth quarter with the exception of costs, which were a headwind of €158 million, including all favorable metal costs, operating challenges at our Muscle Shoals facility and significant inflationary pressures faced earlier in the period. Now turn to Slide 11, and let's focus on the A&T segment. Adjusted EBITDA of €76 million increased 36% compared to the fourth quarter last year. Volume was a headwind of €13 million as higher aerospace shipments were more than offset by lower TID shipments in the quarter. Aerospace shipments were up around 10% versus last year as the recovery in aerospace markets continues. Shipments in TID were down 19% versus last year, reflecting a slowdown in most industrial markets. Price and mix was a tailwind of €48 million on improved contract pricing, including inflation-related pass-throughs and a stronger mix with more aerospace. Costs were a headwind of €17 million, primarily as a result of higher operating costs. FX and other was a tailwind of €2 billion in the quarter. For the full-year 2023, A&T generated record adjusted EBITDA of €324 million, an increase of 50% compared to 2022. The drivers of the full-year performance were similar to those in the fourth quarter. Now I'll turn to Slide 12, and let's focus on the AS&I segment. Adjusted EBITDA of €25 million decreased 22% compared to the fourth quarter last year. Volume was a €6 million headwind as a result of lower shipments in industry. Automotive shipments were stable in the quarter versus last year despite some impact from the UAW strike early in the quarter, the timing impact between certain program switches and the sale of our German extrusion business. Industry shipments were down 33% in the quarter versus last year as a result of weaker market conditions in Europe and the sale of our German extrusion business. Price and mix was a €3 million tailwind primarily due to improved contract pricing, including inflation-related pass-throughs. Costs were a headwind of €1 million on lower operating costs more than offset by inflation. FX and other was a headwind of €2 million in the quarter. For the full-year 2023, AS&I generated adjusted EBITDA of €133 million, a decrease of 11% compared to 2022. The drivers of the full-year performance were similar to those in the fourth quarter. It is not on the slide here, but I wanted to conclude with some quick comments on Holdings and Corporate. For the full-year 2023, our holdings and corporate expense was €2.7 million. We currently expect holdings and corporate expense to run at approximately €40 million in 2024 with the increase primarily driven by additional IT spending with the upgrade of our ERP system. Now turn to Slide 13, where I want to give an update on the current inflationary environment we are facing and our focus on pricing and cost control to offset these pressures. Throughout most of 2023, we were faced with broad-based and significant inflationary pressures, although the pressure began to – in some categories in the fourth quarter. As you know, we operate a pass-through business model, so we are not materially exposed to changes in the market price of aluminum, our largest cost input. Labor and other nonmetal costs continue to be higher. For energy, our 2024 energy costs are largely secured and at moderately more favorable levels compared to 2023, although energy prices remain well above historical averages. Given these cost pressures, we continue to work across a number of fronts to mitigate their impact on our results. We have demonstrated strong cost performance in the past years, and we will continue our relentless focus. As we previously noted, many of our existing contracts have inflationary protection mechanisms and where they do not, we are working with our customers to include them. As you have seen our results, we have demonstrated very good progress across all of our end markets. As you can see in the bridge on the right, we were very successful again in 2023 with price and mix, the largest increment being priced in offsetting inflationary cost pressures and demand headwinds. We expect inflationary pressures in some categories to continue in 2024, but at more moderated levels. We are confident in our ability to offset a substantial portion of the impact with an improved topline this year and our relentless focus on cost control. Now let's turn to Slide 14 and discuss our free cash flow. We generated strong free cash flow of €170 million in 2023, including €58 million in the fourth quarter. As you can see on the bottom left of the slide, we have continued to deliver our commitment to generate consistent, strong free cash flow. Since the beginning of 2019, we have generated €820 million of free cash flow. Looking at 2024, we expect to generate free cash flow in excess of €130 million for the full-year, though we expect this to be negative in the first quarter and weighted more towards the second half of the year, similar to last year given the seasonality in our business. We expect CapEx to be around €370 million this year, which includes higher spending on return-seeking projects, such as our recycling and casting center in Neuf-Brisach. The facility is expected to start up on time and on budget in the fourth quarter this year. We expect cash interest of approximately €125 million, which includes the impact from higher interest rates. We expect cash taxes of approximately €55 million. Lastly, we expect working capital and other to be a modest use of cash for the full-year. With the expected free cash flow generation of over €130 million, we intend to use a large portion of the free cash flow to begin repurchasing shares starting in the first half of the year, as Jean-Marc mentioned. We have the ability to begin limited share repurchases in the near-term without shareholder approval. To fully execute the size of the program, we announced today we will rely on shareholder approval each year at our Annual General Meeting, including the one in the second quarter this year. Now let's turn to Slide 15 and discuss our balance sheet and liquidity position. At the end of the fourth quarter, our net debt of €1.7 billion was down over €220 million compared to the end of 2022. Our leverage reached a multiyear low of 2.3x at the end of 2023 were down 0.5x versus the end of 2022 and within our target leverage range. We remain committed to maintaining our target leverage range of 1.5 to 2.5x. As you can see in our debt summary, we have no bond maturities until 2026 and our liquidity remains strong at €373 million as of the end of 2023. We are extremely proud of the progress we have made on our capital structure and of the financial flexibility we've built, including the ability to begin returning capital to our shareholders. Before turning the call back to Jean-Marc, I wanted to spend a minute on Slide 16 to discuss changes to the presentation of certain non-GAAP financial measures. The changes are based on discussions we had with the staff of the SEC and specifically related to the adjustment for metal price lag, which is non-cash in certain non-GAAP financial measures. The changes will be reflected when we report our first quarter 2024 results. For the first change, moving forward, we will no longer be reporting our value-added revenue. For the second change, we will be revising our definition of adjusted EBITDA to no longer exclude the non-cash impact of metal price lag, which the staff considers to be inconsistent with the guidance in question 100.04 of the compliance and disclosure interpretations on non-GAAP financial measures. While the going-forward disclosure of consolidated adjusted EBITDA will no longer remove metal price lag, we will continue to exclude metal price lag from our segment adjusted EBITDA, which we use for evaluating the performance of our operating segments. And as a reminder, consolidated adjusted EBITDA following the revision, less metal price lag is equal to consolidated adjusted EBITDA prior to the revision. We will continue to provide investors and other stakeholders with all the information necessary to understand the non-cash impact of metal price lag on our reported results each quarter. For comparability, we have provided tables on Slide 17 and 18 to show a reconciliation of prior period adjusted EBITDA under the old definition to the new definition. Moving to adjusted EBITDA guidance. The company will continue to provide guidance excluding metal price lag. In addition, leverage as defined by the company will continue to be calculated as net debt divided by adjusted EBITDA, excluding metal price lag. I hope that's all clear. With that, I would now like to hand the call back to Jean-Marc.
Jean-Marc Germain: Thank you, Jack. Let's turn to Slide 20 and discuss our current end market outlook. The majority of our portfolio today is serving end markets currently benefiting from durable sustainability-driven secular growth, in which aluminum, a light and infinitely recyclable material plays a critical role. Turning first to packaging. Canstock inventory adjustments appear largely behind us in both North America and Europe. Canstock demand has stabilized in recent quarters, though demand is still relatively low given the current inflationary environment, the lack of promotional activity and following a multiyear period of rapid growth during COVID. Even in today's environment, aluminum cans continue to outperform and win share against other substrates like plastics and glass. The long-term outlook for this end market continues to be favorable as evidenced by the growing consumer preference for the sustainable aluminum beverage cans, capacity growth plans, broadcast makers in both regions and the greenfield investments ongoing here in North America. We are expecting growth to return in canstock in 2024. And longer term, we continue to expect packaging markets to grow low to mid-single digits in both North America and Europe. We'll participate in this growth in both regions as announced at our Analyst Day two years ago. I am pleased to report that the recycling and casting center we are building at our Neuf-Brisach facility is well underway and both on time and on budget, as Jack mentioned. At Muscle Shoals, operational performance continued to improve during the fourth quarter. Last month, though, the extreme cold weather and the snow impacted operations and shipments for a full week. The plant is in the process of ramping back up now, though, this will have an impact on our first quarter results. Turning now to automotive. Auto OEM sales and production numbers globally have increased the last couple of years, but remained below pre-COVID levels. Demand decelerated in the second half of 2023, although it remains healthy. Our automotive business was up slightly in the fourth quarter despite some impact early in the quarter from the UAW strike in North America. Consumer demand for luxury cars, light trucks and SUVs remains steady. Vehicle electrification and sustainability trends will continue to drive the demand for lightweighting and use of aluminum products in the long-term. As a result, we remain very positive on this market. Let's turn now to aerospace. The recovery in aerospace continued in the quarter, though demand remains below pre-COVID levels. Major aero OEMs remain focused on increasing build rates for both narrow and wide-body aircraft. We remain confident that the long-term fundamentals driving aerospace demand remain intact, including growing passenger traffic and greater demand for new, more fuel-efficient aircraft. Demand remains strong in the business and regional jet markets and the defense and space markets. In addition, we continue to experience strong demand for our Airware family of products. As a chart on the left side of the page highlights, these three core end markets represented 79% of our revenue in 2023. Turning lastly to other specialties. We expect weakness to continue in most industrial markets, and in general, these markets are dependent on the health of the industrial economies in each region. In TID rolled products and industry extrusions, demand is generally weak today. We do expect some recovery in these markets as we move through the year. In summary, we like the fundamentals in each of the markets we serve and strongly believe that the diversification of our end markets is an asset for the company. Let's turn now to Slide 21, where we detail our key messages and financial guidance. Our team achieved very strong performance in 2023, including record adjusted EBITDA of €713 million and strong free cash flow of €170 million. Importantly, we also further deleveraged our balance sheet to a multiyear low of 2.3x, and we are now within our target leverage range. I'm very proud of our performance, especially in this challenging environment. As we look ahead, while uncertainties persist on the macroeconomic and geopolitical fronts, we are optimistic about our prospects for 2024 and beyond. Based on our current outlook, for 2024, we are targeting adjusted EBITDA, excluding the non-cash impact of metal price lag, as Jack commented, in the range of €740 million to €770 million, and free cash flow in excess of 130 million. We do not give quarterly guidance, as you know, but given the softness in some of our end markets to start the year and as a result of the extreme cold weather impact on our operations at Muscle Shoals in January, we do expect adjusted EBITDA in the first quarter of 2024 to be weaker than the same period last year. Also, we are planning for free cash flow to be negative in the first quarter like last year due to normal seasonality. These expectations are, of course, included in our full-year guidance that I just provided. I also want to reiterate our long-term guidance of adjusted EBITDA, excluding the non-cash impact of metal price lag in excess of €800 million in 2025 and our commitment to maintain our target leverage range of 1.5x to 2.5x. To conclude, let me say again that I'm very proud of our results and very excited about our future. We are extremely well positioned for long-term success, and we remain focused on shareholder value creation as demonstrated by our recently announced share repurchase program. With that, Elliot, we will now open the call for Q&A question section.
Operator: Thank you. [Operator Instructions] Our first question comes from Katja Jancic with BMO (TSX:BMO) Capital. Your line is open. Please go ahead.
Katja Jancic: Hi. Thank you for taking my question. Just first on the general meeting that is going to be held in second quarter. Is that in May?
Jean-Marc Germain: Yes, that's at the beginning of May.
Katja Jancic: And until then on the share buybacks, you can only, I guess, due to as much as the offset dilution. And after the general meeting, you could be more aggressive. Is that fair?
Jean-Marc Germain: Generally fair. Yes.
Katja Jancic: And then maybe looking to 2025, you reaffirmed the over €800 million EBITDA target. Can you talk a bit about what will bridge you between 2024 and 2025?
Jean-Marc Germain: Sure, Katja. So number one, and it's a – so if you take the midpoint of our guidance and you go to 2025 in excess of €800 million, does a €50 million increase by and large, minimum increase, that we are expecting. A large portion of it, a very large portion of it is just a startup of our recycling center in Neuf-Brisach that is starting, as Jack was saying, we're on time. On budget, starting somewhere beginning of October. So to ramp up quite rapidly, and that is going to create a lot of EBITDA going into 2025. The second aspect is we have good visibility on our aerospace demand in 2024. The challenge for us is to be able to produce everything that is asked of us. And in 2025, there is more coming. We know that. You will also have noted that we are still something like 15%, 20% below pre-COVID levels at the moment in 2023. So we've got a healthy ramp-up that continues, we will be spending a bit of money to debottleneck some of our operations to produce more aerospace products. So that's going to help us as well. And then finally, as you know, we've experienced operating challenges in Muscle Shoals in last year. We made quite a few improvements. We believe we still have some improvements we can make, and that will more than exceed the total €50 million that we need to deliver upon to bridge from 2024 to 2025.
Katja Jancic: Thank you. I'll hop back.
Jean-Marc Germain: And as you can see, all of these, we've got visibility upon and they are fully within our control. So we're not betting on any wonderful days and a rosy future in the global economy in 2025.
Operator: We now turn to Corinne Blanchard with Deutsche Bank (ETR:DBKGn). Your line is open. Please go ahead.
Corinne Blanchard: Hey, good morning. Good morning, Jean-Marc and team.
Jean-Marc Germain: Hi, Corinne.
Corinne Blanchard: Hey. Good morning. Could you maybe talk about how much dormant EBITDA for –you're sitting on? Thinking about the industrial extrusion business, maybe once come back? Are we talking maybe 2025, 2026? So trying to see like what the potential that could be added to the number there?
Jean-Marc Germain: Okay. So you broke up at the beginning of your question, but I think you're asking about how much of a drag down is the specialties in general in 2023?
Corinne Blanchard: Well, actually not the drag down but how much it could unlock from it? Can you hear me?
Jean-Marc Germain: I think. Yes, we can. Yes. So I think if you look at the historical volumes that we are producing in the specialty segment, so be it in a TID or in or in extrusions, you've got to make an assumption as to what do you think is a good run rate kind of mid-cycle and well below mid-cycle at the moment. And if you multiply that by a margin that's less than the average margin in this segment because in both AS&I and in A&T respectively, the extrusions of a lower margin than the average of S&I, the TID has a lower margin than the average of A&T, times the volume that you think is the gap between where we are today and where mid-cycle is. That gives you an idea of what is available to us. Knowing that because we have sold the German assets, we have less – we've got some volumes that we will not make any more in the future because of the sale of the German assets. So anyway, it would be bottom line, it would be a nice contribution, it is not needed to get to our 2025 guidance really.
Corinne Blanchard: Okay. Thank you. And maybe for the second question, for the A&T business, can you just talk about how we should think about the margin going forward? Because it has been actually quite strong in 2023. And I think above what people were thinking it would be. So should we base 2024 and 2025 looking back at 2023? Or should we still consider more like the $1,000 or €1,000 per ton guidance that you provided a year-ago?
Jean-Marc Germain: Yes, the $1,000 or €1000 per ton is more a mid-cycle number, right, which factors in aerospace not being as buoyant as it is today and TID being a little bit stronger, which has a lower margin, right, than A&T. At the moment, in the current conditions, it's fair to say that you should expect us to be closer to the 2023 actuals than at the midpoint yet. I mean as I commented, we have good visibility on aerospace. We believe the market is going to be very strong in 2024, very strong in 2025. Barring any exceptional crisis that can always happen. But in the current visibility we have, we believe we have a good shot at being towards the higher end of that margin. Jack, do you want to add anything?
Jack Guo: Yes. I mean the only thing I would add there, Corinne is, as the TID business expect to recover a little bit this year without eating to the margin a little bit relative to the margin from last year, so just a point to consider.
Corinne Blanchard: Okay, thank you.
Operator: Our next question comes from Bill Peterson with JPMorgan (NYSE:JPM). Your line is open. Please go ahead.
Bill Peterson: Yes. Hi. Good morning. Thanks for taking our questions.
Jean-Marc Germain: Good morning, Bill.
Bill Peterson: I guess if we think about – yes, good morning. You mentioned some of the end markets remain soft, but you also commented about the weather conditions for Muscle Shoals. I guess for the latter, can you quantify the impact in terms of maybe quarter-on-quarter or year-on-year comparison? And I guess, if it is down for a week, that would kind of imply sort of a high single-digit type of shipment loss, but I'm not sure if that's the right way to think about it. And then just really trying to understand just the near-term demand drivers impacting the first quarter. If you can kind of help us understand by end market, what you're seeing and maybe even including commenting by region.
Jean-Marc Germain: Yes. So Bill, on the impact, I mean, I think it will all depend of the Muscle Shoals situation in Q1. It will all depend on how much ground we can make up and all that. So in the quarter it's not over. But I think in terms of misshipments, you're absolutely right. The plant is at a stand still for a week. So – and it's supposed to be a week where you produce your easily in the 10kt range. So the market conditions we're seeing right now. So we're seeing can strong in North America, a little bit weak still in Europe, but better than it has been. We are seeing the aerospace market very good in Q1. And in terms of auto, there's a divergence between North America and Europe. Europe is slow and North America is extremely strong to the point that we are challenged to make everything we need to make in North America. And finally, on specialties, we don't see yet a rebound. But we're seeing a few green shoots here and there. Some customers are being a little bit more optimistic, but it's – that's why we think the market may turn this year, but we are not seeing really tangible massive evidence of that just yet. Did I answer your question?
Bill Peterson: Yes. No, that's very helpful. Maybe in terms of capital allocation, it's great to see the leverage where it is and of course, the announced buyback and realizing you have the May – meeting to define how that can look further. But I guess holistically, would you think of this – would you want to put this in a way to be sort of like a payout ratio, a percentage of free cash flow or opportunistic if you were to think about this in the second half of the year and beyond?
Jean-Marc Germain: Yes. So Bill, I think the way we look at the capital allocation is fundamentally, we want a balanced capital allocation. We are committed to this $300 million share repurchase program through the end of 2026. How exactly it unfolds, still to be determined. But as I said, we will update you on a quarterly basis. We think it's – we look at it in the – from the viewpoint of we want to have good returns on every capital allocation we make. We want it to be balanced so that there's a balance between returning money to shareholders, continuing to invest in the business, building the financial flexibility. And over time, if you – which I'm sure you do, you run the numbers, you will see that the company, even though at a $300 million free cash flow – sorry, share repurchase buyback, the company continues to delever. And we certainly don't – we want to stay within our 1.5x to 2.5x range. So as we do that, we're building flexibility and over time, that shareholder return program will certainly continue. Jack, anything you want to add?
Jack Guo: Yes. I mean, Bill, the only thing I would add is I don't – we don't want to be too prescriptive we want to – in terms of like a ratio per se, I think we want to maintain some of the flexibility. It's the first time we are executing a share buyback program. It will – from an execution perspective, will be quite hands off and leverage the 10b5 program.
Bill Peterson: Okay. If I could sneak in one more. So I guess if you think about the broader scrap market in the U.S. and Europe, I guess we're wondering, is there – do you think there's sufficient supply to meet the growing demand needs, especially with two new rolling mills ramping in the U.S?
Jean-Marc Germain: Yes, definitely. So I think the rolling mills are ramping up later in the decade as you know. The market continues to grow. There is more aluminum being used, and therefore, more aluminum being recycled naturally. And then with the focus on more of a circular economy, one should expect that also the recycle rate is going to improve. So yes, we believe there is ample supply of scrap. And by the way, both Europe and North America are today exporting a significant amount of scraps to Asia, which is a bit of a waste. And if we can find a more economical way to recycle the scrap domestically, then obviously, that's addressing a problem and finding a profitable solution for a problem that exists today, which is this leakage of scrap to faraway countries. So yes, I think we're in very good shape for this decade at least.
Bill Peterson: Okay. Thanks for the insights and I'll pass on. Congrats on the execution.
Jean-Marc Germain: Thank you.
Operator: We now turn to Curt Woodworth with UBS. Your line is open. Please go ahead.
Curt Woodworth: Yes. Thank you. Good morning, Jean-Marc. Question on P&ARP. So if we look at EBITDA per ton this quarter at €345, that's the highest we've seen in many years despite volumes being the lowest that you've had all year. So can you kind of comment on, I guess, margin expectation for that business going forward? How you see net price into 2024?
Jack Guo: Yes, Curt, maybe I'll take this one. So I think – I mean, first of all, a tremendous achievement in the fourth quarter, as you've noted. And with a margin profile that's over €300 per ton. I would say when we look at 2024, it will continue to be a year transition in terms of costs. Yes, inflation has moderated, has eased but the absolute cost level remained substantial in terms of labor energy. We do have a slower start in some of the end markets that Jean-Marc talked about they have the weather event Muscle Shoals that's impacting first quarter results. And the aluminum market aluminum price remains low, which obviously impacts our scrap profit in the business unit. So I think 2024 expected to be a year in transition, probably some for modeling perspective similar to 2023, but we'll look – we're confident in getting the margin profile to over €300 per ton over time.
Curt Woodworth: Okay. And then in terms of the aerospace, can you talk a little bit about volume expectations for this year in terms of how your nominations have come in? And then you noted Airware continues to be strong. So should we expect that your mix profile will be similar or better in 2024 relative to 2023?
Jack Guo: Yes. It will continue to be favorable. We had favorable micro mix within aerospace within A&T, and within aerospace portfolio. So continue to expect that going forward into 2024. And then in terms of volume, we do expect volume to be higher in 2024 versus 2023.
Jean-Marc Germain: But not yet at pre-COVID levels.
Curt Woodworth: Okay. And then maybe just lastly, in terms of the guidance, what is the expectation for the net price realization this year?
Jean-Marc Germain: What do you mean by net price realization cut? Sorry.
Curt Woodworth: Do you expect net price to be favorable, so your price and mix will offset inflationary pressures in the business? And if so, to what extent?
Jean-Marc Germain: I see. Well, I don't think we want to go into that level of detail, Curt. I think we are very comfortable with our guidance of €740 million to €770 million. There's many moving parts to it. So clearly, with less inflation, there will be less of a price mix benefit with less cost pressure, exactly how it pans out. It's a bit too early to tell.
Curt Woodworth: All right. Thanks very much.
Jean-Marc Germain: Thank you.
Jack Guo: Thank you.
Operator: Our next question comes from Josh Sullivan with The Benchmark Company. Your line is open. Please go ahead.
Joshua Sullivan: Good morning.
Jean-Marc Germain: Good morning, Josh.
Joshua Sullivan: Just within the Aerospace segment, you mentioned good visibility. But just given the potential moving production timelines from one of the aero OEMs here, are there any noticeable changes in either min/maxes or contract prices in different geographies at this point?
Jean-Marc Germain: Not really, Josh. I mean as you know, we are more exposed to Airbus than we are to Boeing (NYSE:BA). That was the case before the 737 MAX issues and all the tail of issues that Boeing has had to deal with. So we are even less exposed to Boeing today than we were at the time. It continues to be an important, a very important customer of ours. But in the grand scheme of things because we are on so many platforms, with so many OEMs. If one aircraft doesn't sell, another one sells, and we are also in that aircraft. So all-in-all, we are not seeing an impact for us, and the demand continues to be very strong. Our pricing is essentially set through our multiyear contracts. So we got very good visibility.
Joshua Sullivan: And then maybe just on Airware. As wide-body production increases, where are you on Airware capacity? Are you positioned with enough to meet end of decade kind of A350, A220 production plans here?
Jean-Marc Germain: So we are starting to be quite tight on capacity, and we will be looking at ways to expand our capacity in that segment.
Joshua Sullivan: Got it. And then just one more, just given some delays in some of these proposed new packaging capacity projects throughout the industry, have you seen any customer response for Constellium engagement, I guess, just looking at your capacity is more stable?
Jean-Marc Germain: Yes. So Josh, yes, there's a little bit of a shift to the right in terms of how the market is developing. What it means for us is some of the investments we are planning to make, we will push them out to later in time, which means that you should expect our CapEx to be in 2025 and onwards, a little bit lower than what we communicated at the time of the Investor Day two years ago. And that's just reflecting the realities of the market and back to the capital allocation discussion, making sure that we put our dollars to the best return possible.
Joshua Sullivan: Okay. Thank you for the time.
Jean-Marc Germain: Sure.
Operator: [Operator Instructions] We now turn to Sean Wondrack with Deutsche Bank. Your line is open. Please go ahead.
Sean Wondrack: Hey, guys. Thanks for taking my questions, today. The first one housekeeping here. The UAW strike, was there any impact in Q4? I don't think so, but just wanted to check there?
Jean-Marc Germain: Yes. So it did have a bit of an impact, Sean. But the few million dollars of EBITDA in Q4.
Sean Wondrack: Okay. Great. And then what you think….
Jean-Marc Germain: Sean, and essentially in AS&I.
Sean Wondrack: Got you. Okay. And then I thought it was interesting your comment about how in Auto, you're seeing strength in the U.S. and weakness in Europe. I was wondering if you could kind of peel away if that comment a little bit more for us, please?
Jean-Marc Germain: Yes. I think the – in Europe, we see the European market being a little bit weaker and also the German OEMs having more difficulties selling their cars overseas. So that's, I think, what is driving the weakness in Europe at the moment.
Sean Wondrack: Got you. Okay. And obviously, you've done a great job with the capital structure. It's nice to see you within the new leverage target range. You were clear about share repurchases on the call. Just my question is, in terms of M&A, you have these three segments up and running really well now. Could there be a consideration if you saw the right deal to maybe add another leg to the stool here or to maybe tack on something to one of your existing segments? Just kind of curious how you're thinking about that at this point?
Jack Guo: Yes. It's a really good question. So I think – and that sort of goes back to keeping a balanced capital allocation approach. And going back to the intention of returning a large portion of our free cash flow towards share repurchase, but while maintaining some flexibility and maintaining flexibility both financially and potentially strategically. I think our approach when it comes to M&A, as you know, is quite conservative. We want to make sure we do the right deals for our shareholders. So we'll be highly selective. But these – so we would consider tuck-in acquisition opportunities at great value.
Sean Wondrack: Right. No, that makes a lot of sense. And then I guess just one last one. Are there further opportunities to marry additional recycling facilities with your manufacturing facilities? And just when we think about that, how important is it to be early to that game or first mover as we think about this in time?
Jean-Marc Germain: Yes. So Sean, there is definitely an opportunity for us to increase our recycling content, our recycling operations, a mix of metal that comes in, that is scrap as opposed to primary. And we will continue to make investments in that domain. And these investments will be organic and could be also M&A. But it is clearly a priority of ours to continue to increase our recycling footprint and capacity.
Sean Wondrack: Got it. Thank you very much for taking my questions. Appreciate it.
Jean-Marc Germain: Sure.
Jack Guo: Thank you, Sean.
Operator: This concludes our Q&A. I'll now hand back to Jean-Marc Germain, CEO of Constellium for final remarks.
Jean-Marc Germain: Well, thank you very much. We are very proud with our progress. As you can see, this demonstrates – our performance demonstrates that we are really focused on value in the context of quite a few markets that are down our profitability continues to improve, and we are very confident in the future as evidenced by the announcement of our share repurchase program. I look forward to updating you on our progress in April. Thank you very much, everybody. Have a good day.
Operator: Ladies and gentlemen, today's call has now concluded. We'd like to thank you for your participation. You may now disconnect your lines.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.