FOOTHILL RANCH - Kaiser Aluminum Corporation (NASDAQ: KALU), a leading producer of semi-fabricated specialty aluminum products, serving customers worldwide with highly-engineered solutions for aerospace and high-strength, custom automotive, general engineering, and other industrial applications, today announced fourth quarter and full year 2019 results.
'We achieved several financial milestones in 2019, including record value added revenue, adjusted EBITDA, adjusted net income and adjusted earnings per diluted share,' said Jack A. Hockema, Chairman and Chief Executive Officer. 'These milestones were accomplished despite planned and unplanned downtime at our Trentwood facility in Spokane, Washington in the first half of 2019, the impact of the General Motors strike in the second half of the year, and reduced sales and inefficiency related to the significant number of automotive model changeovers in 2019.'
'We were proactive to enhance our financial and operational position during the year. Capitalizing on attractive credit markets, we successfully completed two new debt financings that increased liquidity. This enhanced financial flexibility will support our strategic investment initiatives, ensuring our continued financial strength throughout the business and economic cycles. In addition, we recently finalized a new labor agreement that extends through 2025 for our two largest facilities in Spokane, Washington and Newark, Ohio. Our continued confidence in the long-term outlook for our business is reflected in our decision to increase the quarterly dividend by 12% to $0.67 per share, up from the 9% increase in early 2019, marking the ninth consecutive year we have increased our quarterly dividend,' stated Mr. Hockema.
Full Year 2019 Management Summary
Full year 2019 results were driven by record aerospace shipments and strong value added pricing, partially offset by lower general engineering and automotive shipments. Strong aerospace demand was driven by growing military airframe builds and restocking in the commercial aerospace supply chain. The strong demand provided a favorable environment for non-contract pricing on the Company's aerospace and industrial products. Results were negatively impacted by heat treat plate capacity constraints at the Company's Trentwood facility due to planned and unplanned downtime during the first half of 2019. Lower shipments of the Company's general engineering applications resulted primarily from allocating a portion of its heat treat plate capacity to meet the strong aerospace demand during the year. In addition, demand for general engineering and industrial applications began to slow in the second half of 2019, and supply chain destocking resulted in additional pressure on demand for the Company's products. Automotive shipments reflected lower build rates, a significant number of automotive model changeovers and new program delays, in addition to the impact of the General Motors strike in the latter part of 2019.
Record adjusted EBITDA for the full year 2019 reflected an impact of approximately $15 million related to the Trentwood downtime, $5 million related to the General Motors strike, and other costs and inefficiencies due to the transition of a number of automotive extrusion programs to new vehicle platforms, as previously noted. Non-recurring charges of $20 million associated with refinancing the Company's $375 million, 5.875% senior notes and a non-cash goodwill impairment of $25 million related to the 2018 acquisition of Imperial Machine & Tool Co. were reflected in the Company's reported Net Income. The goodwill impairment was driven by a change in valuation of the additive manufacturing business which was determined to have a longer term horizon for development and acceptance than anticipated at the time of acquisition.
2020 Outlook
'Looking forward, we expect that the impact of the Boeing 737 MAX situation on our aerospace shipments will be offset by higher general engineering and automotive shipments than in 2019, resulting in a low-single-digit year-over-year increase in both total shipments and value added revenue,' stated Mr. Hockema. 'With a market environment continuing to support strong value added pricing and with expected efficiency gains in both our automotive operations and at our Trentwood facility, we expect to achieve an EBITDA margin above 26% for the full year.'
The Company's aerospace order book for 2020 is strengthened by increased defense spending and demand for the F35 Joint Strike Fighter, the F/A-18 Super Hornet, and other military applications. For the full year 2020, the Company expects a single-digit reduction in aerospace/high strength shipments and value added revenue, compared to the record high of 2019. The Company also anticipates North American automotive build rates in 2020 to be similar to 2019 and expects double-digit year-over-year growth in its automotive shipments as new programs continue to come on stream. General engineering demand is expected to be driven by strong semi-conductor demand and relief from the supply chain destocking that suppressed demand in the second half of 2019. The Company's shipments of non-core applications are expected to decline significantly in 2020 as capacity is allocated to more strategic applications.
Commencing in 2020, the Company will launch a $375 million multi-year expansion and operational security investment project at its Trentwood facility. Trentwood has consistently operated at capacity since 2004 and the Company expects this to continue in 2020. While the 737 MAX situation has short-term demand implications, the Company expects that the result will be pent-up long-term demand for commercial aerospace applications in addition to growing long-term demand for its heat treat plate products. The long-term fundamentals for strong secular growth in aerospace applications remain intact and the strategic investment and expansion project will further position the Company to capitalize on demand growth throughout the next decade and beyond.
The initial project at Trentwood is a new $145 million heavy gauge plate stretcher that will relieve the load on the Company's existing plate stretcher which has operated at far greater production rates than anticipated when it was installed in 2008. The new stretcher will provide increased capacity, redundancy, efficiency and operational security for a critical operation in the Company's process flow. Timing of other investment modules of the $375 million project will depend upon market conditions, although the Company currently expects to complete the full expansion project by 2025. Expected benefits include an increase in heat treat plate production capacity of approximately 25% in addition to enhanced quality, and cost and inventory efficiency. Capital spending in 2020 is expected to be approximately $100 - $125 million including annual sustaining capital and other growth and efficiency investments across the platform.
Non-GAAP Financial Measures
This earnings release contains certain non-GAAP financial measures. A 'non-GAAP financial measure' is defined as a numerical measure of a company's financial performance that excludes or includes amounts so as to be different than the most directly comparable measure calculated and presented in accordance with GAAP in the statements of income, balance sheets, or statements of cash flow of the Company.
The non-GAAP financial measures used within this earnings release are value added revenue, adjusted operating income, EBITDA, adjusted EBITDA, adjusted net income, and adjusted earnings per diluted share which exclude non-run-rate items and ratios related thereto. As more fully described in these reports, 'non-run-rate' items are items that, while they may occur from period to period, are particularly material to results, impact costs primarily as a result of external market factors and may not occur in future periods if the same level of underlying performance were to occur. These measures are presented because management uses this information to monitor and evaluate financial results and trends and believes this information to also be useful for investors.
Forward-Looking Statements
This press release contains statements based on management's current expectations, estimates and projections that constitute 'forward-looking statements' within the meaning of the Private Securities Litigation Reform Act of 1995 involving known and unknown risks and uncertainties that may cause actual results, performance or achievements of the Company to be materially different from those expressed or implied. Kaiser Aluminum cautions that such forward-looking statements are not guarantees of future performance or events and involve significant risks and uncertainties and actual events may vary materially from those expressed or implied in the forward-looking statements as a result of various factors. These factors include: (a) the continuation of strong long-term demand growth for the Company's aerospace, automotive and general engineering applications and improvement in the Company's manufacturing efficiencies; (b) the ability of the Company to identify and successfully execute strategic capital investments and continuous improvement projects to facilitate growth in the Company's results including internal and external growth opportunities; (c) the Company's ability to achieve the level of shipments, profitable sales growth, capacity and capability expansions, manufacturing cost efficiencies, increasing operating leverage, productivity improvements, product quality enhancements or other benefits anticipated by management, including those anticipated from the Company's strategic investments; (d) demand drivers and the Company's ability to participate in mature and anticipated new automotive programs expected to launch in the future and to successfully launch new automotive programs; (e) growing demand for the Company's products driven by higher airframe build rates, larger airframes and the continued conversion to monolithic designs; (f) changes in the markets served by the Company, including aerospace, defense, general engineering, automotive, distribution and other markets, including changes impacting the volume, price or mix of products sold by the Company and the Company's ability to flex production consistent with changing demand levels; (g) the impact of the Company's future earnings, financial condition, capital requirements and other factors on future dividends or the repurchase of shares of the Company's common stock and any decision by the Company's board of directors in regard to either; (h) uncertainties related to the resolution of the Boeing 737 MAX situation and (i) other risk factors summarized in the Company's reports filed with the Securities and Exchange Commission, including the Company's Form 10-K for the year ended December 31, 2019. The Company undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the Company's expectations.
Contact:
Melinda C. Ellsworth
Tel: (949) 614-1757
KAISER ALUMINUM CORPORATION 
