Keith A. Harvey: Thanks, Kim. Good morning, everyone, and thank you for joining us. I will begin on slide seven. We are very pleased with our first quarter performance. The momentum we carried out of 2025 not only continued, but in several areas accelerated. As you saw in our earnings release last night, we are raising our full-year outlook, reflecting how quickly the improvement we are seeing is coming together as we execute our strategy and move toward our long-term conversion revenue and EBITDA goals. We believe 2026 represents the opportunity to deliver a true step change in performance, and our first quarter results reinforce that view. This quarter delivered another record for EBITDA and EBITDA margins.
New capacity installed over the last several years is ramping well, customer demand has been stronger than we anticipated coming into the year, lead times across the industry are beginning to stretch, and pricing continues to firm across many of our products. While metal remains at elevated levels, these higher costs, which we pass through, have not led to any signs of meaningful substitution in our markets, and our supply lines for metal remain secure through the balance of the year, which allows us to stay focused on execution rather than availability. There were four key drivers behind the strength of the results we delivered in the quarter. First, customer activity across all of our end markets exceeded expectations.
As lead times extended and pricing firmed, the environment has increasingly rewarded reliability and service. These are exactly the conditions where Kaiser Aluminum Corporation differentiates itself and where our operating discipline creates opportunities to win incremental business. Second, we continue to see meaningful mix improvement at our rolling mill Warrick. The mix shift toward higher value-added coated volume is fundamental to Warrick’s long-term success and underpins our confidence in the margin and EBITDA trajectory of the business. Performance has been encouraging and demand for coated products remains strong. Based on what we are seeing today, we expect this mix improvement to continue through the balance of the year. Third, operational performance significantly improved across our operations.
With significant start-up costs and related disruptions to the operations now behind us as we completed our new investments, strong operational and financial performance is returning to more historical levels. Excluding metal lag gains in the year-over-year quarterly results, we saw an approximate 850 basis points margin improvement due to operational performance gains alone. And finally, aluminum prices moved up meaningfully during the quarter, creating a metal tailwind. While beneficial to our financial results, it is modest relative to the structural improvements underway across the business. As always, we operate on a metal-neutral basis, passing through what we cannot control while focusing on conversion, productivity, and disciplined capital deployment.
I also would like to point out Kaiser Aluminum Corporation’s strong competitive position with the growing use of recycled material across our portfolio, which not only supports our sustainability initiatives, but also creates the environment for strong tailwinds under current conditions. I will continue to remind everyone that these conditions can also reverse and become headwinds should metal prices decline in a volatile market. Neal will cover these points in more detail as he walks through financial details related to the quarter. Neal?
Neal E. West: Thank you, Keith, and good morning, everyone. I will now turn to slide nine for an overview of our shipments and conversion revenue. Conversion revenue for the first quarter was $404 million, an increase of approximately $41 million, or 11%, compared to the prior-year period. Looking at each of our end markets in detail, aerospace and high strength conversion revenue totaled $131 million, up $10 million, or approximately 8%, primarily reflecting a 9% increase in shipments over last year. Commercial aircraft production continued to recover, supported by higher build rates at our OEM partners. We are seeing signs of destocking now ending on several of our products, albeit certain plate products continue to destock within our commercial aerospace customers.
Demand across our other aerospace and high strength applications, including business jet, defense, and space, remains strong with improving booking rates. Packaging conversion revenue totaled $157 million, up $30 million, or approximately 24% year over year, reflecting a 13% increase in shipments over last year. The shift to coated products is generating higher conversion revenue per pound and this is supported by strong underlying market demand. In addition, the improvement in shipments also reflects the ramp-up of the fourth coating line. As Keith mentioned on our last call, although profitability is expected to strengthen meaningfully in 2026, we plan to operate the line at around 80% utilization while we further optimize quality and consistency.
General engineering conversion revenue for the first quarter was $87 million, up $4 million, or approximately 5% year over year, primarily driven by favorable pricing, partially offset by a 2% decline in shipments. Inventory levels across the channel remain at multi-year lows, positioning us well as these markets improve. Tariff-related reshoring and the differentiation of our customer-focused quality and services along with our Kaiser Select offerings are reinforcing a favorable market setup for increasing volumes with improved pricing. And finally, automotive conversion revenue of $29 million decreased by 8% year over year on an 8% decrease in shipments. Sustained high consumer borrowing costs and tariff-related uncertainties are dampening conditions across the automotive industry as a whole.
However, demand for larger vehicles such as light trucks and SUVs, where our products are primarily targeted in this end market, remains strong among certain buyers. Additional details on conversion revenue and shipments by end market applications can be found in the appendix of this presentation. Now moving to slide 10. Reported and adjusted operating income for the first quarter was $98 million, up approximately $55 million year over year. Reported net income for the first quarter was $63 million, or income of $3.71 per diluted share, compared to net income of $22 million, or income of $1.31 per diluted share, in the prior-year period.
After adjusting for pre-tax, non-run-rate charges of $0.6 million, adjusted net income for the first quarter 2026 was $63 million, or adjusted income of $3.74 per diluted share, compared to adjusted net income of $24 million, or adjusted income of $1.44 per diluted share, in the prior-year period. Our effective tax rate for the first quarter was 24%, compared to 25% in the first quarter 2025. For the full year 2026, we continue to expect our effective tax rate before discrete items to be in the mid-20% range. Additionally, we anticipate the 2026 cash tax payments for federal, state, and foreign taxes will be in the $10 to $13 million range. Now turning to slide 11.
Adjusted EBITDA for the first quarter was $129 million, up $55 million from the prior-year period. Adjusted EBITDA as a percentage of conversion revenue improved by 1,200 basis points from 2025 to 31.8%. The year-over-year improvement was primarily driven by $25 million from higher shipment volumes and pricing, and a net $34 million improvement in operating costs. This reflects improved scrap utilization and spreads, which was partially offset by higher operating costs. Of the $34 million operating cost improvement, $15 million was attributed to metal lag gain. In addition to our strong underlying operational performance, the first quarter metal lag gain was approximately $36 million.
The increase in year-over-year scrap spreads and the metal lag gain reflect higher aluminum prices influenced by the upward pressure in global markets from the conflict in the Middle East, as well as elevated Midwest premium driven by U.S. tariff policy and tight domestic supply. As the year progresses, we remain focused on operational improvements by optimizing efficiencies and further leveraging our recent capital investment to support continued margin expansion. Now turning to slide 12 for a discussion of our balance sheet and cash flow.
We generated solid free cash flow, which we calculate as operating cash flow less CapEx, of $69 million in the first quarter, despite higher working capital demands and elevated aluminum pricing, resulting in total cash of approximately $30 million and $566 million of borrowing availability on our revolving credit facility. Our resultant liquidity position of approximately $596 million remained strong as of 03/31/2026. As a reminder, our senior notes interest costs are fixed at $54 million annually, and we have no debt maturing until 2030.
Given our strong last-twelve-month EBITDA performance and cash position, at the end of the first quarter 2026 our net debt leverage ratio improved to 2.8x from 3.4x at year-end, moving us closer to our targeted range of 2.0x to 2.5x. We now expect full-year free cash flow to be in a range of $140 million to $150 million, subject to metal price movements and their impact on working capital. Turning to capital allocation. Our framework remains focused on driving long-term growth. Our priorities are clear: disciplined organic investment, selective inorganic opportunities, and consistent return to stockholders.
Our capital expenditures totaled $19 million for the first quarter 2026, and for the full year 2026, we continue to expect our capital expenditures to be in a range of $120 to $130 million. Finally, on April 13, we announced that our Board of Directors declared a quarterly dividend of $0.77 per common share, reaffirming their support for our strategy and focus on delivering sustainable value to our stockholders. 2025 capped our nineteenth consecutive year of dividend payments, a unique distinction that sets Kaiser Aluminum Corporation apart in the industry.
In summary, as we celebrate Kaiser Aluminum Corporation’s eightieth anniversary, we enter 2026 with strong momentum, solid visibility across our end markets, and the benefit of having completed major growth investments. With this foundation in place, we are focused on harvesting returns, expanding margins through disciplined execution, and generating meaningful free cash flow. I will now turn the call back over to Keith to discuss our 2026 outlook. Keith?
Keith A. Harvey: Thanks, Neal. Let me walk through our end markets and how we are thinking about the remainder of the year as part of that discussion, turning to slide 14. Starting with aerospace and high strength, demand continues to improve. We saw solid bookings and shipments across the portfolio in first quarter, and that strength is expected to continue. Destocking headwinds that affected parts of the market last year continued to ease, and improving demand is now the primary driver. A lack of imports is supporting market share gains, and increasing defense and space spending is adding incremental demand across several programs.
In fact, demand for our defense and space applications appears to be taking an additional step higher, building on already high levels in 2025. Utilization across the facilities remains high, including the recently completed Phase 7 capacity expansion at our Trentwood rolling facility, driving longer lead times and upward pressure on pricing for non-contractual bookings. Based on this backdrop, we now expect aerospace and high strength shipments to grow in the range of 15% to 20% this year, with conversion revenue growth of 10% to 15%. In packaging, performance during the quarter was strong, with robust shipments and continued healthy demand in a supply-constrained environment.
The fourth coating line advanced further toward full production, with eight monthly output records attained since 2025. This improvement was achieved despite persistent challenges with certain converters we use, particularly related to on-time delivery shortfalls and overall broader performance concerns. Our own execution improved during the quarter and momentum remains positive. With solid multi-year demand visibility, we will continue to position conversion revenue ahead of shipment growth as coated products become a larger portion of our mix. This is reflected largely in higher conversion revenue per pound. As you can see in the appendix of this presentation, conversion prices through first quarter have risen by nearly 50% since we acquired the business in 2021 and continue to improve.
Given current market conditions, we now expect packaging shipments to grow between 10% and 15% for the year, with conversion revenue growth in the range of 20% to 25%. General engineering is off to a strong start in 2026 as well. Shipments and booking activity were solid across the portfolio. Pricing and lead times are moving out across most products, signaling a healthier demand environment. Generally speaking, low customer inventories and extending lead times create a favorable market backdrop. Specifically, on semiconductor plate products, order activity has been encouraging, whereas the destocking overhang that weighed on demand last year has largely transitioned into ensuring capacity is available to keep up with requirements.
Based on trends we are seeing today, we expect general engineering shipments and conversion revenue both to increase between 5% and 10% for the year. In automotive, results were in line with expectations. Demand for light truck and SUV, where aluminum pairs well in light-weighting, remains healthy. Our shipments were lower as we prepare for two major outages later this year focused on equipment repairs, upgrades, and reviewing plans to significantly expand capacity to support aluminum driveshaft demand. As always, these investments are contractually supported by customer commitments and position the business well for future growth. Based on these factors, we now expect shipments and conversion revenue to be flat to down 5% for the year.
Now turning to slide 15 and taking all of this together. We now expect conversion revenue to rise 10% to 15% and EBITDA to increase between 20% and 30% year over year. This improvement reflects stronger demand, firmer pricing, improved mix at Warrick, and continued strong execution across the portfolio. Overall, we are off to an excellent start in 2026. The fundamentals across our markets are aligning well with the expectations we set heading into the year and, in several cases, are exceeding them. The strategy is working, execution remains strong, and the opportunities ahead are even more encouraging. With that, we are happy to take your questions. Thank you.
Operator: We will now be conducting a question and answer session. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star keys. One moment while we poll for questions. Our first question comes from William Peterson with JPMorgan. Please proceed with your question.
William Peterson: Yes. Hi. Good morning. Thanks for taking the questions. Nice job on the quarterly execution and the revised guidance. I have a few questions. Starting off, trying to unpack the first quarter print: better-than-expected metal price lag benefits—can you unpack that versus the improving demand story and also versus the value-added pricing power? More importantly, looking ahead on the revised guidance, can you help us understand how much scrap spreads play a role versus mix and volume impacts that you had called out?
Keith A. Harvey: Sure. Good morning, Bill, and I appreciate your comments. Let me speak to some of that. If I miss something, just hit me with the specific question again. The way I look at where we currently are, I have been trying to pull out the metal lag gains just to understand how we are doing operationally. If I do that in the comparative between the first quarter of last year and the first quarter of this year: last year, if I pulled out the gain and looked at what the EBITDA margin was without the gain, we were around the mid-teens, around a 14% to 15% type margin on just the operational side.
If I do the same thing with the first quarter of this year and pull out the $36 million gain that we called out, that margin has moved up to about 24%. So we are driving the business operationally, which includes not only the mix, volume, and pricing we expected in the business, but also underlying better performance at the facilities. That also captures in the traditional business that we are taking advantage of spreads—these are beyond the metal lag that we call out. All in all, we have all the pieces performing much better and as expected.
What was key, and I think sometimes gets lost: last year, we called out for the full year about $47 million of one-time start-up costs and related items. We have those pretty much behind us now. So we are getting some of that cost back into the system, the markets are improving, and we are executing better with all the chaos behind us. With regard to metal lags going forward, what we have stated—like in February—we said we are taking what the current quarter outlook does for us, and then we are looking at the forward metal curves.
The forward metal curves, especially as we looked at in our last call, seemed to drop off proportionally for the market coming back into alignment. What I will say is that those forward curves are remaining fairly elevated. I am sure that is representative of the volatility in the market. So we could have some continued metal lag gains that will aid us. But, again, we are differentiating between that and operational performance. When I look at the margin growth based on how well we are doing versus just these tailwinds that have taken place, we have almost a 75% improvement year over year in Q1.
That is what I am most pleased about and focused on, and I believe it is going to long term drive our business.
William Peterson: Thanks for that color. There have been some changes to the Section 232 aluminum tariffs that have been refined somewhat. Are you able to comment on what impacts this change may have on your business, including supporting pricing or other customer feedback that you are hearing thus far?
Keith A. Harvey: I have looked at it and tried to understand where that can come to play. I think it enhances the domestic supply position. A lot of those semi-finished type products coming in where a 25% would apply are really going to impact the imports for the most part. The 232s are hanging in quite well. I think we are on the verge of continuing to see reshoring elevate here. We are seeing more factory demand. We are seeing growth in semiconductors start to come off the floor we saw last year. I think it is going to double year over year this year and has potential to double year over year next year.
So I think that strong demand and a greater hindrance for imports only leads us to a better market condition with regard to demand and a pricing environment.
William Peterson: Maybe one more and I can get back in the queue. On the assumptions baked into the updated aero and high strength guidance, it sounds like you are increasingly more confident in commercial aero demand. Are destocking dynamics done or nearly finished? And how does that compare with the import environment being less pronounced? On the other side, defense sounds like you are feeling incrementally better as well.
Keith A. Harvey: That is really it. We are seeing defense, in some programs where we expected perhaps a doubling, actually quadrupling of expected demand coming our way. On commercial aero, I happened to be watching CNBC yesterday morning, and Kelly Ortberg was on from Boeing, and he publicly called out the rise in build rates on the single-aisle from 42 to 47, as well as expected continued progress on other variants that are being up for approval. So we are seeing the commercial definitely get a little stronger. We are also seeing space—it is a cliché, but we are seeing space take off. All these things are hitting around the same time.
We got into that same environment in 2019 when we saw not only aerospace start to take off, but also GE begin to rise, and that created a pretty pleasant environment for us. I can foresee the same thing beginning to occur here.
William Peterson: Okay. Thanks for the color. Good to hear things turning positive for you. I appreciate the chance to ask some questions.
Keith A. Harvey: Thank you, Bill. Appreciate it.
Operator: Our next question comes from Samuel McKinney with KeyBanc Capital Markets. Please proceed with your question.
Samuel McKinney: Hey, good morning, and congrats on the strong quarter. I am going to follow up on the last question on the aero and high strength market. You had enough confidence in the end market trends to raise the shipment outlook there for the year. You touched on the production ramp at the major OEMs, but can you talk about where you think we are in the destocking/restocking cycle within that end market right now?
Keith A. Harvey: If I had to use a baseball analogy, I would say we are coming up in the seventh inning with regard to demand for plate-type products, and I believe we are in the ninth and heading into extra innings on the other products and markets that we participate in, including defense, business jet, space, and the other products. If I look back, we claimed a new record in 2024 for aero and high strength and then we got into some of that destocking last year. If I compare our first quarter results to the first quarter 2024, they are very similar, which is a strong start, stronger than last year.
Our outlook, with the activity we are seeing currently and expectations, is that we are going to be growing quarter over quarter through the remainder of the year. I am expecting the quarterly results to continue to improve, and the outlook we are seeing right now supports that. Lead times have more than doubled in the last few months. We are seeing that with record-low inventories outside of the commercial players, which bodes well for long-term demand. We are going to see similar strength on the GE products as well.
Samuel McKinney: Thanks. That is helpful. On a per-pound basis, you saw nice sequential expansion in packaging conversion revenue this quarter. Talk to us about the progress you have made and expect to make over the balance of this year on shifting to more coated capacity at Warrick, as well as the reception from your customers on the product coming off that new roll coat line.
Keith A. Harvey: We have a target of 80% utilization of that line this year. Naturally, the first question is, with such strong demand, why not ramp it to 100%? Part of the mantra for Kaiser Aluminum Corporation is on-time delivery, and over the last couple of years, we have not been meeting our expectations—much less our customers’ expectations—in that regard. So we are going to ramp up and make sure that our service levels improve in a similar cadence. If we can get those earlier in the year, I am confident that demand will be there to support additional shipments. With regard to customer reception, we have had excellent reception to the quality of the product coming off that line.
We have been progressing qualifications well through a number of customers, and as we ramp, we still have a way to go and more upside from that potential. Again, 80% is the target; there remains another 20% beyond that, and we intend to continue to focus on that move to coated. Our customers are receptive; they appreciate it. Demand is as strong as we have ever seen it, and we should continue to see growth throughout the quarter and through the balance of the year in that category.
Operator: We have reached the end of our question and answer session. I would now like to turn the floor back over to Keith A. Harvey for closing comments.
Keith A. Harvey: Thanks, Maria. We thank you for your continued interest in the company. I would also like to thank all the Kaiser Aluminum Corporation team members for their contributions in helping develop and execute what has long been a very successful strategy. I look forward to updating you all on our progress in July. Have a great day.
Operator: This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.
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Kaiser Aluminum (KALU) Q1 2026 Earnings Transcript was originally published by The Motley Fool
