Release Date: July 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Constellium SE (CSTM, Financial) reported a strong free cash flow of EUR75 million in the second quarter.
- The company increased its share buyback activities, repurchasing nearly 1.6 million shares for around USD33 million.
- Net income for the quarter was EUR71 million, up from EUR32 million in the same quarter last year.
- The company secured a USD23 million grant from the US Department of Defense to increase internal casting capacity at its Muscle Shoals facility.
- Constellium SE (CSTM) signed a long-term agreement with Lotte Infracell to supply high-quality foilstock for electric vehicle battery applications, with an investment of around EUR30 million.
Negative Points
- Shipments were down 5% compared to the second quarter of 2023, primarily due to lower shipments in P&ARP and AS&I segments.
- Revenue decreased by 8% compared to last year, mainly due to lower shipments and unfavorable price and mix.
- Adjusted EBITDA, excluding the positive non-cash impact from metal price lag, was EUR172 million, down from EUR209 million last year.
- The company experienced significant operational challenges at its Muscle Shoals facility, impacting performance.
- Constellium SE (CSTM) faced unprecedented flooding at its operations in the Valais region of Switzerland, causing significant damage and operational disruptions.
Q & A Highlights
Q: Can you discuss the specifics driving the 2025 EBITDA outlook of over EUR800 million?
A: Jean-Marc Germain, CEO: The step-up involves several factors: the Sierre situation will be resolved, no repeat of the Muscle Shoals weather event, the Neuf-Brisach recycling center ramping up, better contractual terms in aerospace, and Vision 25 cost reductions. Additionally, improvements at Muscle Shoals and potential recovery in European automotive and specialties markets will contribute.
Q: How much is the new recycling facility expected to add to EBITDA?
A: Jean-Marc Germain, CEO: The facility is expected to add around EUR40 million to EBITDA, with a total investment of EUR130-135 million plus working capital.
Q: Given the flooding in Switzerland, is it possible to produce some of those products at other facilities?
A: Jean-Marc Germain, CEO: Yes, we are shifting volumes to Singen, Germany, and Issoire, France, to mitigate the impact. However, the Sierre plant is still needed, and we plan to restart it with a focus on critical equipment.
Q: Is there anything structurally wrong at Muscle Shoals?
A: Jean-Marc Germain, CEO: No, there isn't. We are working on increasing capacity and improving efficiencies, which is taking more time than planned but is progressing.
Q: How do you view the potential impact of new competition and tariffs in the US market?
A: Jean-Marc Germain, CEO: More capacity is needed in the market, and we welcome new developments. The impact of tariffs is hard to predict, but we will adapt as necessary.
Q: When do you expect to revisit your EBITDA guidance?
A: Jean-Marc Germain, CEO: We will likely have a clearer picture by October when we publish Q3 results. The timing of the restart in Sierre is a key factor.
Q: What is the EBITDA contribution of the Switzerland sites?
A: Jack Guo, CFO: While we won't be precise, the sites are not significant contributors to overall earnings. Most of the impact will be a one-time hit this year, with operations expected to normalize by 2025.
Q: How should we think about net debt and buybacks given the revised free cash flow guidance?
A: Jack Guo, CFO: We are comfortable with our capital structure and aim to maintain leverage between 1.5 to 2.5 times. Despite the flood impact, we plan to continue our share buyback program and return a large portion of free cash flow to shareholders.
Q: What are the key items to bridge the 2025 EBITDA target?
A: Jean-Marc Germain, CEO: Key items include resolving the Sierre situation, no repeat of Muscle Shoals weather events, ramping up the Neuf-Brisach recycling center, better aerospace contractual terms, Vision 25 cost savings, and potential recovery in European markets.
Q: Do you plan to exit the weak specialty markets?
A: Jean-Marc Germain, CEO: No, we view diversification as an asset. We are focusing on improving product mix and targeting more remunerative niches, such as the investment with Lotte for battery electric material.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
