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Edited Transcript of KALU earnings conference call or presentation 20-Apr-17 5:00pm GMT

Thomson Reuters StreetEvents

Q1 2017 Kaiser Aluminum Corp Earnings Call

FOOTHILL RANCH Apr 22, 2017 (Thomson StreetEvents) -- Edited Transcript of Kaiser Aluminum Corp earnings conference call or presentation Thursday, April 20, 2017 at 5:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Daniel J. Rinkenberger

Kaiser Aluminum Corporation - CFO and EVP

* Jack A. Hockema

Kaiser Aluminum Corporation - Chairman, CEO, CEO of Kaiser Aluminum Corporation and Director of Kaiser Aluminum Corporation

* Melinda C. Ellsworth

Kaiser Aluminum Corporation - VP of IR & Corporate Communications

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Conference Call Participants

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* Andrew C. Quail

Goldman Sachs Group Inc., Research Division - VP

* Curtis Rogers Woodworth

Credit Suisse AG, Research Division - Director and Senior Analyst

* Edward Marshall

Sidoti & Company, LLC - Research Analyst

* Jorge Mariano Beristain

Deutsche Bank AG, Research Division - Head of Americas Metals And Mining Equity Research

* Joshua Ward Sullivan

Seaport Global Securities LLC, Research Division - Director of Aerospace and Defense and Engineered Materials and Senior Industrials Analyst

* Novid R. Rassouli

Cowen and Company, LLC, Research Division - VP

* Paul Thomas Luther

BofA Merrill Lynch, Research Division - Associate

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Kaiser Aluminum First Quarter 2017 Earnings Conference Call (Operator Instructions) As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Ms. Melissa Ellsworth (sic) [ Ms. Melinda Ellsworth ]. Ma'am, you may begin.

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Melinda C. Ellsworth, Kaiser Aluminum Corporation - VP of IR & Corporate Communications [2]

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Thank you. Good afternoon, everyone, and welcome to Kaiser Aluminum's First Quarter 2017 Earnings Conference Call. If you've not seen a copy of today's earnings release, please visit the Investor Relations page on our website at kaiseraluminum.com. We've also posted a PDF version of the slide presentation for this call. Joining me on the call today are Chief Executive Officer and Chairman, Jack Hockema; President and Chief Operating Officer, Keith Harvey; Executive Vice President and Chief Financial Officer, Dan Rinkenberger; and Vice President and Chief Accounting Officer, Neal West.

Before we begin, I'd like to refer you to the first 2 slides of our presentation and remind you that the statements made by management and the information contained in this presentation that constitute forward-looking statements are based on management's current expectations. 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 company's earnings release and reports filed with the Securities and Exchange Commission, including the company's Annual Report on Form 10-K for the full year ended December 31, 2016. The company undertakes no duty to update any forward-looking statements to conform the statements to actual results or changes in the company's expectations. In addition, we have included non-GAAP financial information in our discussion. Reconciliations to the most comparable GAAP financial measures are included in the earnings release and in the appendix of the presentation. Any reference in our discussion today to EBITDA means adjusted EBITDA, which excludes non-run-rate items for which we've provided reconciliations in the appendix. At the conclusion of the company's presentation, we will open the call for questions.

And now I'd now like to turn the call over to Jack Hockema. Jack?

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Jack A. Hockema, Kaiser Aluminum Corporation - Chairman, CEO, CEO of Kaiser Aluminum Corporation and Director of Kaiser Aluminum Corporation [3]

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Thanks, Melinda. Welcome to everyone joining us on the call today. Overall, we achieved solid first quarter results that were comparable to the record prior year results. As we had discussed on our February earnings call, our first quarter results were negatively impacted by headwinds from aerospace supply chain destocking, lower sales margins and construction-related inefficiencies at Trentwood. Despite the headwinds, our first quarter adjusted EBITDA and margin were comparable to the prior year results as strong operating performance and improved cost partially offset the headwinds. Total shipments increased 3% compared to the prior year quarter, and the storyline reflects both real demand and the influence of supply chain inventory actions. Significantly higher general engineering first quarter shipments reflected strong-real demand, bolstered by supply chain restocking compared to destocking in the prior year quarter. The increase in general engineering shipments more than offset year-over-year aerospace shipments due to destocking in the aerospace supply chain. However, the lower value-added product mix combined with the competitive price pressure and higher contained metal cost that squeezed margins on certain noncontract sales drove a year-over-year decline in value-added revenue and sales margins. The unfavorable sales impact was largely offset by strong operating performance and improved year-over-year cost facilitated by significantly improved manufacturing efficiency across our platform that offset construction-related inefficiencies at Trentwood, favorable price spreads on scrap raw material purchases and lower major maintenance and overhead cost.

Beyond the financial results, during the first quarter, we returned approximately $42 million of cash to shareholders, including $9 million of dividends and $33 million of share repurchases that were comparable to the total repurchases for the full year of 2016. In addition, the board recently authorized an additional $100 million for ongoing share repurchases, reconfirming confidence in our long-term outlook for the business. The Trentwood strategic investment and modernization project is proceeding as planned. And as we have previously discussed, we are prepared for major construction activities and equipment outages in the second quarter.

Before discussing the details of the second quarter outlook, I'll turn to Dan now for additional color regarding the first quarter.

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Daniel J. Rinkenberger, Kaiser Aluminum Corporation - CFO and EVP [4]

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Thanks, Jack. As Jack noted, first quarter shipment volumes increased 3% year-over-year, while first quarter value-added revenue declined 3% to $204 million. This reflected a leaner mix with fewer aerospace shipments and more general engineering shipments as well as tighter sales margins on spot transactions of our higher value-added products. Aerospace value-added revenue declined 9% from the prior year quarter, and aerospace shipments declined 5%, reflecting moderated demand due to inventory destocking in the aerospace supply chain. Additionally, value-added revenue declined reflected tighter sales margins as competitive pricing prevented recovery of an increase in our contained metal cost on aerospace spot transactions.

Automotive value-added revenue increased 3% over the prior year period as following multiple launch delays and slow ramp ups throughout 2016 activity on our new bumper programs stepped up significantly. Bumper shipments in the first quarter were substantially higher than any quarter in 2016, and we expect further growth in these programs as the year progresses.

General engineering value-added revenue improved $4 million or 7% compared to the first quarter of 2016. Solid underlying demand for our applications bolstered by supply chain restocking in the first quarter for some GE products enabled a 13 million -- 13%, pardon me, 13% year-over-year increase in our shipments. Nevertheless, competitive conditions hindered our ability to offset rising contained metal costs on spot sales of our higher value-added general engineering products.

First quarter 2017 EBITDA was $54 million, nearly matching the record of $55 million established in the first quarter of last year. The $1 million EBITDA reduction reflected the $7 million adverse sales impact primarily due to the shift of products mix and the sales margin compression, largely offset by $6 million of lower costs. The cost categories generating the $6 million were favorable price spreads for scrap raw material purchases, lower major maintenance expense and overhead expense. These categories are not variable with volume, but they nevertheless do vary from quarter-to-quarter, and in the first quarter, the favorable $6 million helped boost the EBITDA margin to 26.6%, even though value-added revenue and EBITDA declined slightly on a year-over-year basis.

An important part of our strategy is to prudently reduce our cost structure to maintain and improve our long-term competitive position. System-wide improvements in our underlying manufacturing efficiency continued in the first quarter with significant improvements in our extrusion and drilling operations. These improvements however were offset in the first quarter by temporary construction-related inefficiencies at Trentwood as the modernization initiative moved into a highly disruptive phase. Building on preparation work completed in the first quarter, the project continues with installations of equipment upgrades during several planned outages at key machine centers in the second quarter and the initial weeks of the third quarter. These activities will disrupt Trentwood's operations, and we expect temporary cost inefficiencies will continue well into the summer with a greater adverse impact in the second quarter than we experienced in the first quarter. Additionally, the outages and disruptions will lower capacity during this period.

On Slide 7. First quarter operating income as reported was $60 million, which included $15 million of nonrun rate gains primarily related to noncash mark-to-market gains on metal hedge positions. Adjusting for nonrun rate items, operating income for the first quarter of 2017 was $45 million compared to $47 million in the prior year quarter. The $2 million decline reflected the $1 million reduction in EBITDA that I just covered as well as the $1 million increase in depreciation expense.

Reported net income for the first quarter of 2017 was $36 million or earnings per diluted share of $2.04. Adjusting for nonrun rate items, the first quarter 2017 net income was $27 million or adjusted earnings per diluted share of $1.52, which compares to $28 million and $1.51 per share, respectively, in the first quarter of 2016.

Our effective tax rate was 34% for the first quarter of 2017, but our cash taxes continue to be low as we use our net operating loss carryforwards. Based on our strong 2016 performance, we paid the maximum annual variable contribution of $20 million to the union and salary to VEBA during the first quarter of this year.

Capital investment in the first quarter was $15 million and for the full year is expected to be approximately $80 million, which is more than twice the level of depreciation. A significant portion of the first quarter and anticipated full year spending is related to the strategic modernization project at Trentwood.

While we continue to deploy cash back into our business on value-creating capital investments, during the first quarter, we also continued to return cash to shareholders with $9 million of dividends and $33 million of share repurchases. The first quarter dividend of $0.50 a share was an 11% increase. 2017 is the sixth year in a row that our board expressed confidence on our business by increasing our dividend. And on April 17, we announced that our board increased the company's share repurchase authorization by an additional $100 million, reconfirming its continued confidence in Kaiser Aluminum.

We continue to maintain financial flexibility with a healthy balance sheet and strong liquidity. At quarter end, cash and short term investments totaled approximately three -- pardon me, 230 million -- pardon me, $230 million, and borrowing availability on our revolving credit facility exceeded $285 million. And I think I have those numbers right. And I'll turn it over to Jack.

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Jack A. Hockema, Kaiser Aluminum Corporation - Chairman, CEO, CEO of Kaiser Aluminum Corporation and Director of Kaiser Aluminum Corporation [5]

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Thanks, Dan. Turning to Slide 8. Our outlook for both the second quarter and the first half of 2017 is consistent with our prior comments on the February earnings call. Although the second quarter business climate is expected to be similar to the first quarter, strategic construction activity at Trentwood, while providing substantial future benefits, will be a temporary but significant drag on results. The planned construction activity is integral to the Trentwood modernization program to further enhance our quality and cost capability while also increasing our production capacity. The projects include installation of a new heavy gauge plate share on the hot line in the second quarter to improve quality, reduce conversion costs and increase capacity and modernization and upgrading in the second quarter and the third quarter of our heat treat processing for light-gauge plate to significantly enhance quality and reduce conversion cost for these products. The planned equipment outages and construction at Trentwood will result in reduced shipments and substantial operational disruption. While we will begin to reap the benefits later in the year, second quarter and third quarter results will be affected by the work. We expect that consistent with our prior comments, major maintenance expenses in the second quarter will be approximately $5 million to $7 million higher than the first quarter. Also, construction-related disruption to Trentwood's operations will cost significant manufacturing efficiency in the second quarter extending into the third quarter. And Trentwood scheduled equipment outages will restrict throughput and reduce shipments in the second quarter and, to a lesser extent, in the third quarter. With these temporary internal headwinds, we expect second quarter shipments and value-added revenue below the first quarter and second quarter EBITDA margin approaching 20% as a consequence of the temporary construction-related costs, inefficiencies and restrictive throughput.

Turning to Slide 9. We reaffirmed our 2017 outlook for both aerospace and automotive applications. We continue to expect destocking in the commercial aerospace supply chain through the remainder of 2017 as inventories adjust to revise production forecast for larger airframes. However, we review the decline in 2017 demand is a temporary pause in the steady long-term demand growth for our aerospace applications. We expect to emerge from 2017 with strong demand growth for aerospace in both 2018 and 2019 driven by growing commercial aerospace builds, recovering growth for business jets and solid growth for military aircraft. Despite supply chain destocking and current constraints on capacity from the planned equipment outages of Trentwood, we expect our strong competitive position to support full year 2017 shipments for aerospace applications similar to 2016.

For our automotive extrusion applications, we continue to expect double-digit year-over-year growth in shipments and mid-single-digits growth in value-added revenue as the mix shifts to lower value-added parts. However, while the 2017 build rate forecast is in line with our prior outlook, we are cautiously monitoring growing dealer inventories that could trigger a reduction in our build forecast later in the year.

Turning to Slide 10, and as mentioned in our previous remarks, we had a very strong first quarter shipments for our general engineering applications, enabled by strong real demand and supply chain restocking. We expect strong real demand to continue in the second quarter, although we do not anticipate further restocking. Also, the equipment outages in the second quarter will constrain capacity for Trentwood products supplied to these applications.

Turning to Slide 11 and the summary of our 2017 outlook. We maintained our view that supply chain destocking will inhibit aerospace demand throughout the year but will rebound in 2018 and 2019 with strong demand for these applications. Automotive and general engineering demand remains strong. While we have experienced compressed sales margins for our noncontract business, we are gaining confidence that our sales margins have bottomed at levels experienced under similar conditions in 2014. Although the strategic project work at Trentwood will continue to hamper our short-term results, the construction activity will diminish throughout the third quarter, and we expect to begin realizing quality cost and capacity benefits from this work later in the year. These benefits will grow in 2018, 2019 and beyond as demand strengthens and as we fully implement the improved practices and capacity expansion enabled by the equipment upgrades.

Turning to Slide 12 and a summary of our comments today. As expected, first quarter results were impacted by supply chain destocking in aerospace and reduced sales margins. Despite these headwinds, we realized EBITDA and margins similar to the record prior year results due to strong operating performance and lower cost. In the second quarter, significant strategic construction activity at Trentwood will restrict throughput, driving efficiencies and cause higher major maintenance cost. However, we expect to begin realizing benefits from the Trentwood projects later in the year and we'll exit the year well positioned with enhanced quality, cost capability and increased capacity to address anticipated robust demand growth in 2018 and 2019. Longer term, our strong balance sheet and cash flow generation will support continued investments in organic and inorganic growth and return of cash to shareholders.

We will now open the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Curt Woodworth with Credit Suisse.

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Curtis Rogers Woodworth, Credit Suisse AG, Research Division - Director and Senior Analyst [2]

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I'm just trying to square I think some of the contrasting comments you made on the aero/HS market because on the one hand you're talking about continued negative effects from destocking for the year and then also some, to use your words, substantial operational impacts 2Q leading into 3Q, but your volume guidance suggests that you're going to be flat year-on-year for those products. So I'm just wondering how that works? Are you offsetting the destock through the operational headwinds through inventory build and then selling more in the spot market? Are you expecting maybe more material growth in the back half of the year?

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Jack A. Hockema, Kaiser Aluminum Corporation - Chairman, CEO, CEO of Kaiser Aluminum Corporation and Director of Kaiser Aluminum Corporation [3]

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Well, I think we've been saying pretty consistently over the past few quarters that our comments relate to total demand and not specifically to what demand on Kaiser would be related to our specific position with our specific customers within the space. We're expecting a positive impact year-over-year second half. Our second half was down a little bit last year compared to the first half. We're expecting positive second half as we come out of the construction activity. But we've also been saying that we expected that the primary impact on us from the aerospace destocking would show up in sales margins this year rather than showing up so significantly on our shipments. So I think we've been consistent in saying what our shipments would be for the year and saying the big impact would be sales margins.

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Curtis Rogers Woodworth, Credit Suisse AG, Research Division - Director and Senior Analyst [4]

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And is the margin impact a function of just shifting to maybe more commodity products that you would sell into the spot market or how...

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Jack A. Hockema, Kaiser Aluminum Corporation - Chairman, CEO, CEO of Kaiser Aluminum Corporation and Director of Kaiser Aluminum Corporation [5]

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It's competitive price pressure on our noncontract business. So we have a very strong relationship and are committed through the cycle to our service center customers, which is where most of the noncontract business is. So we are the supplier there, but when the market gets soft, a lot of people try to attack that market, the noncontract business, and pick up spot orders. So we'll typically continue to get the business, get the orders, but our prices will be degraded by competitive pressures.

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Curtis Rogers Woodworth, Credit Suisse AG, Research Division - Director and Senior Analyst [6]

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Okay, excellent. And then can you talk about where your lead times currently stand for your aero products, maybe how that would compare to where you were at the start of the year?

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Jack A. Hockema, Kaiser Aluminum Corporation - Chairman, CEO, CEO of Kaiser Aluminum Corporation and Director of Kaiser Aluminum Corporation [7]

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Our aerospace plate is still around 9, 10 weeks, so it's a little bit longer. Yes, 11 to 12 weeks on aerospace. So it's stretched out a little bit. Our general engineering plate is out closer to 16, 17 weeks.

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Operator [8]

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And our next question comes from the line of Edward Marshall with Sidoti & Company.

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Edward Marshall, Sidoti & Company, LLC - Research Analyst [9]

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So the question I wanted to just follow up to what Kurt was actually getting at, you get a sense that as we progress throughout the year, you talked about softness to maybe the value-added revenue component of the spot market business for aero. But as you start to see a pickup in general engineering and, I guess, general engineering plate, how does that impact the spot market for aero and vice versa? Because generally I think they work in tandem.

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Jack A. Hockema, Kaiser Aluminum Corporation - Chairman, CEO, CEO of Kaiser Aluminum Corporation and Director of Kaiser Aluminum Corporation [10]

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Yes, they do work in tandem on the noncontract business, although the aerospace portion is primarily domestic competition whereas the general engineering has a very heavy import component in addition to some domestic, but it's more of an import competition whereas aerospace is more domestic competition.

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Edward Marshall, Sidoti & Company, LLC - Research Analyst [11]

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So as we sit here looking at what happened in general engineering in the first quarter, do you have any -- do you feel a little bit better about the strength maybe of pricing and spot as we move throughout the year than you did maybe sitting here in the fourth quarter call?

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Jack A. Hockema, Kaiser Aluminum Corporation - Chairman, CEO, CEO of Kaiser Aluminum Corporation and Director of Kaiser Aluminum Corporation [12]

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Well, what we characterize or what I characterize in my comments is that we think that we've bottomed out, and we've really bottomed out at levels similar to what we experienced in 2014 under very similar circumstances. The situation was almost a carbon copy of what we're seeing today. The big issue is what happens to metal prices. We're seeing some ability now to move with the metal prices, so certainly the tenor has changed in the marketplace where 3 months or more likely 6 months ago, we were really concerned about price degradation. Now most of our degradation over the past few months has been related to rising metal prices that we weren't able to recapture but we're now seeing some ability to recapture those increases in metal. So yes, the tenor in the marketplace has changed from negative pressure to maybe some positive in terms of recovering metal increases, but we're not forecasting substantial improvements in margins. At this point, we're optimistic that we're going to be able to offset any more erosion, if metal prices continue to rise.

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Edward Marshall, Sidoti & Company, LLC - Research Analyst [13]

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That's fair. I appreciate it. When you think about general engineering, you talked about restocking your real demand, and there are 2 buckets. When you say restocking, first, I'm also thinking there was a pre-buy in that comment about restocking as well as you're going into some maintenance into 2Q. First, is that accurate? And then secondly, could you quantify the impact from both restocking and real demand?

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Jack A. Hockema, Kaiser Aluminum Corporation - Chairman, CEO, CEO of Kaiser Aluminum Corporation and Director of Kaiser Aluminum Corporation [14]

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Yes. We -- the only quantitative measure we have actually, in general engineering as it relates to the downstream restocking and destocking is for general engineering rod and bar products, which are a significant amount of the shipments that go into that product offering. We do have metrics there. The real demand year-over-year, which is what the service centers were selling to their customers was up roughly 5% year-over-year. But prior year, there was substantial destocking between us and the service centers. This year, there was substantial restocking, and the total for just that product line was like 16% year-over-year demand on the mills compared to 5% real demand. Now how much that translated through the rest of the product offering, we don't have that quantitatively. But certainly, we think for most of the long products, which is the predominant portion of the shipments that go into general engineering, we think that same phenomenon was occurring there. So we had a lot of artificial demand that boosted those first quarter general engineering shipments. As we look at the second quarter, right now, we're looking at modest year-over-year growth, and that's with just real demand but also with our capacity restricted a little bit at Trentwood because of the construction. So we're still seeing strong demand but not as much as was reflected in that first quarter with the huge year-over-year change in restocking versus destocking, if that clarifies or answers your question.

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Edward Marshall, Sidoti & Company, LLC - Research Analyst [15]

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It does. I mean, if I could just elaborate on that a little bit. When I think about general engineering, and I know you don't generally parse this out, so I won't ask for the percent moves. But maybe you can kind of talk general terms about general engineering plate. Was it higher than usual quarter in general engineering plate because I know that's also manufactured at Trentwood.

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Jack A. Hockema, Kaiser Aluminum Corporation - Chairman, CEO, CEO of Kaiser Aluminum Corporation and Director of Kaiser Aluminum Corporation [16]

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Yes. Demand was strong for general engineering plate. We don't know how much that, if any, was restocking. There may have been some, but we didn't get a sense that there was anything artificial in terms of anticipating our production outage as it relate to the first quarter.

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Operator [17]

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Our next question comes from the line of P.T. Luther with Bank of America Merrill Lynch.

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Paul Thomas Luther, BofA Merrill Lynch, Research Division - Associate [18]

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I wanted to hop over to the other side of things, if I could. Jack you sort of I think alluded to this in your comments about potential downside risk. I was wondering if you could just maybe provide a little extra context about your auto outlook and how that squares up with recent news we've seen in the auto space such as GM with some of their extended holiday shutdowns and things like that or seasonal shutdowns. So wondering if there's a way you can give us some additional context about maybe your underlying assumptions and then how at risk -- how significant the risk may be there.

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Jack A. Hockema, Kaiser Aluminum Corporation - Chairman, CEO, CEO of Kaiser Aluminum Corporation and Director of Kaiser Aluminum Corporation [19]

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Yes. Our internal forecast are still pretty consistent with what we were looking at 3 months and 6 months ago. And they do reflect the current information that's out there for some extended plant shutdowns in the third quarter, not only in GM but on some of our products at Ford, we're going to see some extended shutdowns. But even with all that, we're still seeing this year looking similar to what our outlook has been for the past 6 months. But from a macro standpoint, we see everything that everyone else says, we've got dealer inventories building here, and sales weren't that strong in March. And so there's just a lot more concern, is this going to hold up at this stage? But at this point, we don't have anything tangible to suggest a change in our current outlook.

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Paul Thomas Luther, BofA Merrill Lynch, Research Division - Associate [20]

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Okay, cool. That's helpful. And then I was hoping you could maybe help me better understand the scrap purchase boost that you got in Q1. Is that something that could continue? How significant that was a boost in Q1, if there's some sort of change in strategy with what you're doing there, lifting under something like that to help out cost side?

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Jack A. Hockema, Kaiser Aluminum Corporation - Chairman, CEO, CEO of Kaiser Aluminum Corporation and Director of Kaiser Aluminum Corporation [21]

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Yes. First of all, it's not a change in strategy. We did comment, I think as long ago as probably the first quarter last year, that we had a major initiative to improve our scrap utilization. We've continued that and got a lot of gains last year from that effort, but that was nominal impact. We were a little bit better on scrap utilization year-over-year in the first quarter, but it was marginal. The bigger impact is the marketplace, and it's a typical phenomenon. We had a rapid run up in the price of prime in the first quarter. Typically, when that happens, the price of scrap lags a run up in prime, and so we get a price benefit on scrap while we're getting squeezed on prime, and that's what happened in the first quarter. It's worth a couple of million dollars order of magnitude. But the same thing happens the other way. If we get plunging prime prices, it will squeeze the scrap prices because they won't move as rapidly as prime, so we get burned the other way. It's a typical market phenomenon, which leads to the answer, no, we do not expect it to continue. We expect we'll be back at equilibrium here in the second quarter.

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Paul Thomas Luther, BofA Merrill Lynch, Research Division - Associate [22]

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Okay, cool. That's helpful. And then final one, and then I'll hand it off. I was wondering if you could also add a little context on the share repurchase authorization, the $100 million added, you had a big boost in share buybacks this quarter, at $33 million, are those opportunistic and if you have some sort of time frame in mind for that next $100 million?

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Daniel J. Rinkenberger, Kaiser Aluminum Corporation - CFO and EVP [23]

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This is Dan. So we did get the authorization partly because the pickup in the volume that we were purchasing during the first quarter and the type of program that we had in place would probably had a kind of buying volume at the similar pricing structures that we see, the prices that we saw in the marketplace. So the pace, it depends on the price, of course. And it's a grid that we have established and used for a long period of time, has us buy fewer shares at high prices and more shares as we move down, so that's consistent all along. The volume was something though that in the 70s, was giving us the ability to buy around $30 million of shares. I can't predict how long the new authorization or the incremental authorization will actually take to be used because it depends on what the market will be.

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Operator [24]

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Our next question comes from the line of Jorge Beristain with Deutsche Bank.

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Jorge Mariano Beristain, Deutsche Bank AG, Research Division - Head of Americas Metals And Mining Equity Research [25]

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I was just wondering if you could quantify the quarter-over-quarter change that we saw in margin, down about 660 bps and just maybe put that into buckets as to how much was really related to Trentwood construction, how much was related to other perhaps inefficiencies and maybe lastly, reduced output. So maybe just kind of help quantify what's transitory versus structural.

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Jack A. Hockema, Kaiser Aluminum Corporation - Chairman, CEO, CEO of Kaiser Aluminum Corporation and Director of Kaiser Aluminum Corporation [26]

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So you're talking about the change from first quarter to the second quarter outlook?

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Jorge Mariano Beristain, Deutsche Bank AG, Research Division - Head of Americas Metals And Mining Equity Research [27]

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Sorry, from fourth quarter to the first quarter.

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Jack A. Hockema, Kaiser Aluminum Corporation - Chairman, CEO, CEO of Kaiser Aluminum Corporation and Director of Kaiser Aluminum Corporation [28]

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Oh, fourth quarter to first quarter. Wow. Just a minute, I have to dig in to my papers here for that one. And I hope I have it here. I think I do. No, I don't have it here right in front of me. Can't get there. Right here. You'll have to ask some follow-up questions to Melinda perhaps, and she may be able to give you some additional character on that. But Dan, do you have data there?

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Daniel J. Rinkenberger, Kaiser Aluminum Corporation - CFO and EVP [29]

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No, I was just going to ask if he'd repeat it because I'm not sure I captured all (inaudible)

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Jorge Mariano Beristain, Deutsche Bank AG, Research Division - Head of Americas Metals And Mining Equity Research [30]

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Yes, I'm just trying to understand sort of quarter-over-quarter with the reduction in margins, how much of that could be attributed to just temporary issues at Trentwood, how much could be related to reduce volume throughput?

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Jack A. Hockema, Kaiser Aluminum Corporation - Chairman, CEO, CEO of Kaiser Aluminum Corporation and Director of Kaiser Aluminum Corporation [31]

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Yes, well, fourth quarter to first quarter, sales margins I think were -- held up pretty well in the fourth quarter. So year-over-year we had roughly a 200 bps change just in sales margins, and that relates to the compression we're getting and the competitive price pressure. So 200 bps of 600 bps is there. Major maintenance I would guess was fairly confident -- or probably higher in the fourth quarter than the first quarter. Yes, but we had -- yes, but we had some of these overhead costs and the scrap price margins were much better, first quarter than fourth quarter. And a lot of that was just related to the scrap price pressure. So other than that, I can't give you the detail to get to that kind of a bridge.

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Jorge Mariano Beristain, Deutsche Bank AG, Research Division - Head of Americas Metals And Mining Equity Research [32]

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Okay. And then maybe you could just talk a little bit about what you're seeing happening in general engineering plate, which clearly was the upside surprise for the quarter. Is this a product that goes into -- could you talk a bit about which sectors would tend to pick that up? Is that energy-related or general manufacturing, why we're seeing such a strong uptick in general engineering plate?

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Jack A. Hockema, Kaiser Aluminum Corporation - Chairman, CEO, CEO of Kaiser Aluminum Corporation and Director of Kaiser Aluminum Corporation [33]

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Well, it's the broad industrial market. If we go back to my prior comments, some of that is -- and you're not -- are you now comparing year-over-year, I mean, you don't want my comparison timeline is...

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Jorge Mariano Beristain, Deutsche Bank AG, Research Division - Head of Americas Metals And Mining Equity Research [34]

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I'm just talking, again, quarter-over-quarter.

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Jack A. Hockema, Kaiser Aluminum Corporation - Chairman, CEO, CEO of Kaiser Aluminum Corporation and Director of Kaiser Aluminum Corporation [35]

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Okay, so year-over-year. Last year, we had significant destocking in the industry. This year, we had significant restocking. So in one sector, which is general engineering rod and bar, which is a significant portion of the shipments there, we had 5% real demand increase, but we had 16% increase in mill demand because we're comparing restocking to destocking, okay? So in that whole general engineering sector, a lot of it was comparing a restocking quarter this year to a destocking quarter last year. Underlying that was single digit, mid-single-digits year-over-year growth, which we've been seeing really for the last 2 or 3 years. So that's the real component. There is strong underlying growth here, but the first quarter was inflated by restocking compared to a prior year that had destocking. And so it really creates a big change year-over-year.

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Operator [36]

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Our next question comes from the line of Novid Rassouli with Cowen and Company.

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Novid R. Rassouli, Cowen and Company, LLC, Research Division - VP [37]

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It's Novid. Most of my questions have been answered but just a couple of quick ones. I wanted to get your thoughts on mix progression. So we clearly saw a mix shift away from aero into general engineering. Once we work through the aero destock, are you expecting a similar mix like moving into 2018 that we've seen over the past few quarters?

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Jack A. Hockema, Kaiser Aluminum Corporation - Chairman, CEO, CEO of Kaiser Aluminum Corporation and Director of Kaiser Aluminum Corporation [38]

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Yes. Yes, although longer term, we'll see more growth in aero and auto than we see in the general engineering and other industrial. So over time, we expect aero and auto to continue to creep up, while general engineering and industrial will reduce as a percentage of the mix.

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Novid R. Rassouli, Cowen and Company, LLC, Research Division - VP [39]

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Okay, great. And then more specifically, we saw value-added revenue per pound fall as general engineering increase as a percentage of the mix. I was just wondering, we also saw general engineering specifically fall with respect to value-added revenue. Was that mix, greater import pressure, or can you provide the moving pieces with respect to general engineering?

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Jack A. Hockema, Kaiser Aluminum Corporation - Chairman, CEO, CEO of Kaiser Aluminum Corporation and Director of Kaiser Aluminum Corporation [40]

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It's price and mix. Yes, so it's a combination of both, and frankly, it's heavily mix in the first quarter.

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Operator [41]

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And our next question comes from the line of Andrew Quail with Goldman Sachs.

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Andrew C. Quail, Goldman Sachs Group Inc., Research Division - VP [42]

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Just got a couple of questions. On that $6 million that you guys are talking about from the improved or your favorable prospect, can you just break that down? I think you said a couple of million dollars. But if you don't expect -- if aluminum prices are flat this quarter, I think they're up 15% from January 1, do you expect to see any sort of improvement on that?

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Jack A. Hockema, Kaiser Aluminum Corporation - Chairman, CEO, CEO of Kaiser Aluminum Corporation and Director of Kaiser Aluminum Corporation [43]

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Well, on the $6 million you're talking about, it was the combination of scrap prices, overhead and major maintenance year-over-year. The major maintenance, as you know, is lumpy quarter-to-quarter, it's going to go way up in the second quarter just because that's when the work is scheduled. So major maintenance is relatively constant, and I'll let Dan speak to overhead and some of those in a minute. But the other piece is the scrap prices. I answered that I think on a prior question. We had a couple of million dollars that was scrap price, and that's just an anomaly of scrap prices lagging the run-up in prime, so we do not expect that to continue.

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Daniel J. Rinkenberger, Kaiser Aluminum Corporation - CFO and EVP [44]

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Yes, on the overhead, I'm not really sure that we're going to see -- it was low, and I think lower than we normally be. We had some -- a small number of items that were I'll call it kind of unique to the quarter. But I think that we'll probably see that be slightly higher as we go into the next couple of quarters.

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Jack A. Hockema, Kaiser Aluminum Corporation - Chairman, CEO, CEO of Kaiser Aluminum Corporation and Director of Kaiser Aluminum Corporation [45]

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Yes, so the point is at a high level from a modeling standpoint, when I look at it, I back out that $6 million, and I say, it wasn't really a $54 million EBITDA quarter. It was a $48 million quarter when I take the anomalies out of it and say what does it look like going forward.

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Andrew C. Quail, Goldman Sachs Group Inc., Research Division - VP [46]

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Just one more on pricing going forward. Would you comment and reiterate your guidance for 2018? When do you sort of expect this to sort of start seeing the spot pricing market to firm during this sort of phase of destocking especially in aero, is that a quarter? And do you think you'll see that in Q3? Or is that more something in Q4?

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Jack A. Hockema, Kaiser Aluminum Corporation - Chairman, CEO, CEO of Kaiser Aluminum Corporation and Director of Kaiser Aluminum Corporation [47]

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Are you talking price now or volume?

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Andrew C. Quail, Goldman Sachs Group Inc., Research Division - VP [48]

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Yes, price. No, price, sorry, price...

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Jack A. Hockema, Kaiser Aluminum Corporation - Chairman, CEO, CEO of Kaiser Aluminum Corporation and Director of Kaiser Aluminum Corporation [49]

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From a price standpoint, we're confident -- right now, things can change, but we're confident right now that we've bottomed out in terms of margins. We're also seeing solid evidence that we're able now to recapture run ups in the price of prime. So if prime moves on us, we think we'll be able or we're confident we'll be able to recapture that, which is why we're pretty confident now that the margins have bottomed out. Will they improve? That's hard to say. We're not counting on it in our internal forecast, but we will continue to probe. And if there are opportunities, we're going to get more price, but we're not building that into our forecast nor would we suggest anyone else build that into their forecast at this point.

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Andrew C. Quail, Goldman Sachs Group Inc., Research Division - VP [50]

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Great. And last one just on the tax rate, a little bit lower this quarter. Do you expect it to go back to more of a 38% normalized or is it going to stay at 34%?

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Daniel J. Rinkenberger, Kaiser Aluminum Corporation - CFO and EVP [51]

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I would expect it to go back to the kind of statutory rate, which is around 37% to 38%.

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Operator [52]

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And our next question comes from the line of Josh Sullivan with Seaport Global.

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Joshua Ward Sullivan, Seaport Global Securities LLC, Research Division - Director of Aerospace and Defense and Engineered Materials and Senior Industrials Analyst [53]

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Just actually one, on a follow-up on the cash tax question there. Do you guys have an estimate when you think the majority of your NOLs will be consumed, just given the current rate that you're burning at?

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Daniel J. Rinkenberger, Kaiser Aluminum Corporation - CFO and EVP [54]

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Yes. We don't give very firm with any kind of a forecast of that nature because it basically implies you're forecasting taxable income. But -- and we like to see it happen sooner than later. Obviously, we've got, what was the number, $414 million of pretax income that we sealed at the end of December, and so at the pace that we're going, it'll be a few years.

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Operator [55]

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And I'm showing no further questions at this time. I'd like to turn the call back to Mr. Hockema for closing remarks.

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Jack A. Hockema, Kaiser Aluminum Corporation - Chairman, CEO, CEO of Kaiser Aluminum Corporation and Director of Kaiser Aluminum Corporation [56]

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Okay. Thanks, everyone, for joining us on the call, and we look forward to updating you during the second quarter call. Thank you.

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Operator [57]

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Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a wonderful day.