Constellium SE (NYSE:CSTM) Q1 2025 Earnings Call Transcript

Constellium SE (NYSE:CSTM) Q1 2025 Earnings Call Transcript April 30, 2025

Constellium SE beats earnings expectations. Reported EPS is $0.2838, expectations were $0.07.

Operator: Good morning or good afternoon, all. Welcome to the Constellium First Quarter 2025 Results Call. My name is Adam, and I’ll be your operator today. [Operator Instructions] I will now hand over to Jason Hershiser, Director of Investor Relations, to begin. So, Jason, please go ahead.

Jason Hershiser: Thank you, Adam. I would like to welcome everyone to our first quarter 2025 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 our factors presented under the heading Risk Factors in our annual report on Form 10-K. 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 GAAP disclosures. And with that, I would now like to hand the call over to Jean-Marc.

Jean-Marc Germain: Thank you, Jason. Good morning, good afternoon, everyone, and thank you for your interest in Constellium. Let’s begin on Slide 5 and discuss the highlights from our first quarter results. I would like to start with safety, our number one priority. We delivered strong safety performance in the first quarter with a recordable case rate of 1.02 per million hours worked. Despite this strong achievement, our safety journey is never complete and we remain focused on this critical priority every day, including achieving our safety target to reduce our recordable case rate to 1.5 this year. Turning to our financial results, shipments were 372,000 tons or down 2% compared to the first quarter of 2024 due to higher shipments in P&ARP that were more than offset by lower shipments in A&T and AS&I.

Revenue of $2 billion increased 5% compared to the first quarter of 2024, primarily due to higher metal prices, partially offset by lower shipments. 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 net income of $38 million in the quarter compares to net income of $22 million in the first quarter last year. Adjusted EBITDA was $186 million in the quarter, although this includes a positive non-cash impact from metal price lag of $46 million. If we exclude the impact of metal price lag, the real economic performance of the business reflects adjusted EBITDA of $140 million in the quarter compared to the $160 million last year when the operating environment was comparatively more favorable.

The adjusted EBITDA of $140 million this quarter also includes a foreign exchange headwind of $4 million and a negative impact at Valais of $10 million as a result of the flood last year. Regarding the Valais, as of today the business has resumed normal operations, which is in line with our prior expectations. While this was a very serious incident that impacted our financial performance the last three quarters, our operations in the Valais have emerged with a lower cost structure at run rate and at this time, we are happy to put it into our rearview mirror. I want to thank one more time our entire team on the ground there for their efforts and incredible results throughout this very difficult time. Moving now to free cash flow. Our free cash flow in the quarter was negative $3 million and in line with our expectations to start the year.

We continue to expect to generate positive free cash flow this year of greater than $120 million. During the quarter, we returned $15 million to shareholders through the repurchase of 1.4 million shares. Our leverage at the end of the first quarter was 3.3 times, though, we expect this to trend down by the end of the year. We delivered solid results this quarter, which were slightly ahead of our expectations despite a very challenging environment, including demand weakness across most of our end markets outside of packaging. We remain focused on strong cost control, free cash flow generation and commercial and capital discipline. Overall, I am quite happy with our first quarter performance. Please now turn to Slide 6. Before turning the call over to Jack, I wanted to give a quick update on the Section 232 tariffs as well as other tariffs under IEEPA and how we see the potential impact to Constellium.

Before going into details on the slide, let me summarize a bit. The tariff situation is a fluid and multifaceted situation. We see both some positive and negative impacts on our business and at this stage, we believe it presents us with various opportunities as well as some additional costs. The guidance we are giving today does include the direct impact from tariffs that we are able to estimate given what we know today and it does include several mitigating factors we have identified to offset the impacts. It also includes our current assumptions on end market demand in the current environment. Our guidance assumes a relatively stable macro environment and it does not include potential impacts from additional tariffs. Shifting to the details of the slide now.

On the production side, we are mostly local for local in the regions we operate. Our automotive structure business in the U.S. buys extrusion from Canada, including from our joint venture in Canada. These extrusions have become more expensive under Section 232 tariffs, which impacted the first quarter by over $1 million. The costs will continue to accumulate going forward and we expect around $20 million for the rest of the year before mitigating items. We are working with our customers on pass-throughs and have made good progress on a number of them and we will continue to work on pass-throughs and other actions to mitigate the impact on our results. In aerospace, we ship small quantities from Europe to the U.S. to serve global OEMs although this has a pass-through today and will not be impacted.

Regarding the automotive specific tariffs that fall under Section 232, the volumes we ship across Mexican and Canadian borders are compliant with USMCA. On the metal supply side, we import some primary aluminum from Canada given the lack of smelter capacity in the U.S. As of today, we have commercial agreements in place to help mitigate the tariff impact on this metal. In terms of scrap, aluminum scrap is excluded from the current scope of Section 232 tariffs and we purchase most of our scrap needs from dealers in the U.S. The impact on scrap from tariffs should be a net positive as the rise in the U.S. regional premium is beneficial for the domestic supply chain. We are starting to see this already as scrap spreads for used beverage cans in the U.S., for instance, started to widen in the latter part of this first quarter.

In terms of commercial impacts, this too should be a net positive for Constellium. Today, around 1 million tons of flat-rolled aluminum imports are coming into the U.S. Tariffs will make domestically produced products more competitive and we should benefit from this. As we mentioned last quarter, we announced a price increase for all flat-rolled products shipped in the U.S. and this is creating benefits for us on noncontracted volumes starting in the second quarter of this year. In terms of end markets, the tariff and trade situation is creating broader macro uncertainty and is having a negative impact on markets such as automotive. Our guidance had already assumed weak conditions in automotive in both North America and Europe and we are monitoring the conditions very closely.

That said, we are not discounting the broader macro uncertainty. We have accelerated our cost reduction efforts under our Vision ’25 program, and we are optimizing our existing capacity depending on market conditions such as shifting some capacity where we can from automotive markets into packaging markets for instance. To close out on tariffs, as I said before, the situation remains very fluid. We are continually monitoring and assessing the potential impact of current and future trade policies, though, at this stage, we believe the tariff on aluminum net-net presents us with some opportunities in the current environment. With that, I will now hand the call over to Jack for further details on our financial performance. Jack?

Jack Guo: Thank you, Jean-Marc, and thank you, everyone, for joining the call today. Please turn now to Slide 8 and let’s focus on our A&T segment performance. Adjusted EBITDA of $75 million decreased 14% compared to the first quarter last year. Volume was a headwind of $20 million due to lower aerospace and TID shipments. Aerospace shipments were down 11% in the quarter versus last year as commercial OEMs continued to work through excess inventory as a result of continued supply chain challenges. Demand in business and regional jets, space and military aircraft remained healthy. TID shipments were down 7% compared to last year as commercial transportation and general industrial markets remained weak in the quarter. TID shipments were also impacted at Valais as a result of the flood from last year.

Price and mix was a headwind of $16 million due to a softer pricing environment in TID and weaker overall mix in the quarter. Costs were a tailwind of $25 million primarily as a result of lower operating costs. Now, turn to Slide 9, and let’s focus on our P&ARP segment performance. Adjusted EBITDA of $60 million increased 25% compared to the first quarter last year. Volume was a tailwind of $4 million as higher shipments in packaging were partially offset by lower shipments in automotive and specialties. Packaging shipments increased 9% in the quarter versus last year as demand remained healthy in both North America and Europe. In North America, we also benefited at Muscle Shoals from improved operational performance in the quarter this year and the non-repeat of the weather event from last year.

Automotive shipments decreased 15% in the quarter with weakness in both North America and Europe. Price and mix was a tailwind of $9 million mainly as a result of improved pricing in the quarter. Costs were a tailwind of $2 million as a result of lower operating costs and more favorable metal costs in Neuf-Brisach mostly offset by unfavorable metal cost in Muscle Shoals given tighter scrap spreads in North America. FX and other was a headwind of $3 million in the quarter. Now turn to Slide 10 and let’s focus on the AS&I segment. Adjusted EBITDA of $16 million decreased 50% compared to the first quarter of last year. Volume was a $12 million headwind as a result of lower shipments in automotive and industry extruded products. Automotive shipments were down 14% in the quarter with weakness in both North America and Europe.

Industry shipments were down 4% in the quarter versus last year as weakness persisted in Europe. Industry shipments were also impacted at Valais as a result of the flood from last year. Price and mix was a $2 million headwind in the quarter while costs were a headwind of $1 million. It is not on the slide here, but our holdings and corporate expense was $11 million in the quarter and within our expectation. Holdings and corporate expense this quarter was up $4 million from last year mainly due to additional IT spending with the upgrade of our ERP system as we previously discussed and some minor one-off items. As we said last quarter, we expect holdings and corporate expense to run at approximately $40 million in 2025. It is also not on the slide here, but I wanted to summarize the current cost environment we’re facing.

As you know, we operate a pass-through business model so we’re not materially exposed to changes in the market price of aluminum, our largest cost input. On other metal costs, we experienced a dramatic tightening of scrap spreads in North America in 2024, which continued as we started the year this year. Scrap spreads in the spot market did improve modestly by the end of the quarter though our scrap needs through the first half of this year have been contracted at comparatively higher scrap spread levels. We expect scrap metal costs to remain a headwind for the remainder of the year relative to historical levels though progressively to a lesser extent. For energy, our 2025 costs are moderately more favorable compared to 2024 although energy prices remain above historical averages.

Other inflationary pressures have eased to more normal levels. And as we said last quarter, given the weakness we’re seeing in several of our markets, we have accelerated our Vision ’25 cost improvement program with measures such as improving operational efficiency, reducing headcount and other labor costs, reducing non-metal procurement spending, optimizing maintenance costs by minimizing the use of outside contractors and cost reduction efforts across many other categories. We have demonstrated strong cost performance in the past years and we’re confident in our ability to right-size our cost structure for the current demand environment. You see some of the benefits in our first quarter results and the run rate benefit should be even more.

Now, let’s turn to Slide 11 and discuss our free cash flow. Free cash flow was negative $3 million in the first quarter and in line with our expectations though this includes a negative $27 million impact at Valais as the business continued to recover from the flood, including capital expenditures and the need to rebuild some working capital. This also excludes $2 million of cash we received from the collection of deferred purchase price receivables, which is a result of our conversion from IFRS to U.S. GAAP and the corresponding accounting treatment of some of our factory arrangements. As we mentioned last quarter, we amended these arrangements earlier this quarter and all cash received under the arrangement since then are recorded in operating cash flows.

Free cash flow, excluding the impact of Valais and including the cash received for collection of deferred purchase price receivables, would have been positive $26 million in the first quarter, which benefited from the actions we took in the latter part of last year to reduce working capital in this current demand environment. Looking at 2025, we expect to generate free cash flow in excess of $120 million for the full year, which is unchanged from our prior guidance. Given the uncertainty with the overall environment, we’re looking at modestly reducing our CapEx this year by about 5% to 10% to stay prudent and stay ahead. For the other cash flow items, we continue to expect them to be at around the same levels as per the previous guidance. As Jean-Marc mentioned previously, we continued our share buyback activities in the quarter.

During the quarter, we repurchased 1.4 million shares for $15 million. We have approximately $206 million remaining on our existing share repurchase program and we intend to use a large portion of the free cash flow generated this year for the program. Now, let’s turn to Slide 12 and discuss our balance sheet and liquidity position. At the end of the first quarter, our net debt of $1.8 billion was up $50 million compared to the end of 2024 with the largest driver being the translation impact from the weaker U.S. dollar at the end of the quarter. Our leverage was 3.3 times at the end of the quarter or up 0.2 times versus the end of 2024. As Jean-Marc mentioned previously, we expect this to trend down by the end of the year. We’re committed to bringing our leverage back down into our target leverage range of 1.5 times to 2.5 times and maintaining this range over time.

As you can see in our debt summary, we have no bond maturities until 2028, and our liquidity increased by $73 million from the end of 2024 and remains strong at $800 million as of the end of the first quarter. With that, I’ll now hand the call back to Jean-Marc.

Jean-Marc Germain: Thank you, Jack. Let’s turn to Slide 14 and discuss our current end market outlook. The majority of our portfolio today is serving end markets benefiting from durable sustainability-driven secular growth in which aluminum, a light and infinitely recyclable material, plays a critical role. However, many of these markets continue to face demand headwinds today and are also now facing uncertainty given the tariff situation. Turning first to the aerospace market. Commercial aircraft backlogs are robust today and continue to grow. Major aero OEMs remain focused on increasing build rates for both narrow and wide-body aircraft though supply chain challenges continue to slow deliveries. As a result, aerospace supply chains need to adjust to lower-than-expected build rates, which is causing a shift in demand to the right for some of our products.

Despite the slowdown in the near term, demand has stabilized for the most part and 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 stable in the business and regional jet market and healthy for space and military aircraft. Turning now to packaging. Demand remains healthy in both North America and Europe. The long-term outlook for this end market continues to be favorable as evidenced by the growing consumer preference for the sustainable aluminum beverage can, capacity growth plans from can makers in both regions and the greenfield investments ongoing here in North America. Longer term we continue to expect packaging markets to grow low to mid-single digits in both North America and Europe.

Let’s turn now to automotive. Automotive OEM production of light vehicles in Europe remains well below pre-COVID levels and is still below pre-COVID levels in North America as well. Demand in North America has continued to soften in the near term and is expected to feel the impact of the current Section 232 auto tariffs. Demand in Europe remains weak, particularly in the luxury and premium vehicle and electric vehicle segments where we have greater exposure. Automotive production in Europe is also expected to feel the impact of the current Section 232 auto tariffs given the amount of vehicles the U.S. imports from Europe. In the long term, we believe electric and hybrid vehicles will continue to grow, but at a lower rate than previously expected.

Sustainability trends such as lightweighting and increased fuel efficiency will continue to drive demand for aluminum products. As a result, we remain positive on this market over the longer term in both regions despite the weakness we are seeing today. As you can see on the page, these three core end markets represent over 80% of our last 12 months revenue. Turning lastly to other specialties. In North America, demand appears to have stabilized albeit at low levels and demand remains weak in Europe. We have experienced weakness across most specialty markets for more than two years now though we are beginning to see some green shoots in certain TID markets in North America. We also believe TID markets in North America provide us with some opportunities today given the current tariffs make imports less competitive compared to domestic production.

As a reminder, these specialties markets are typically dependent upon the health of the industrial economies in each region, including drivers like the interest rate environment, industrial production levels and consumer spending patterns. We continue to work hard to adjust our cost structure to the current demand environment, which will put the businesses in an even better position when the industrial economies do recover. To conclude on the end markets, we like the fundamentals in each of the markets we serve and we strongly believe that the diversification of our end markets is an asset for the company in any environment and that the current conditions will pass. Turning lastly to Slide 16, we detail our key messages and financial guidance.

Our team delivered solid results in the first quarter this year despite continued demand weakness across most of our end markets and the lingering financial impact of the Valais flood. We returned $15 million to shareholders in the quarter with the repurchase of 1.4 million shares. While tariffs are creating broader macro uncertainty and impacting end markets like automotive, we are proactively managing our business to the current environment. We remain focused on strong cost control, free cash flow generation and commercial and capital discipline. Based on our current outlook, including the current end market conditions I just described and assuming a relatively stable macro environment, we are maintaining our guidance for 2025. We are targeting adjusted EBITDA excluding the non-cash impact of metal price lag in the range of $600 million to $630 million and free cash flow in excess of $120 million.

I also want to reiterate our long-term targets of adjusted EBITDA, excluding the non-cash impact of metal price lag, of $900 million and free cash flow of $300 million in 2028. To conclude, while we continue to face challenging conditions in most of our markets today, we believe that this will pass and I remain very excited about our future and the ability to seize the many opportunities in front of us, which we have demonstrated in the past. We’re extremely well positioned for long-term success and remain focused on executing our strategy and shareholder value creation. With that, Adam, we will now open the Q&A session, please.

Operator: [Operator Instructions] Our first question comes from Katja Jancic from BMO Capital Markets. Katja, your line is open. Please go ahead.

Q&A Session

Katja Jancic: Hi. Thank you for taking my questions. Maybe starting off, Jean-Marc, you mentioned that first quarter was ahead of expectations. Can you talk a bit more about what drove that?

Jean-Marc Germain: Yeah, good morning, Katja, thanks for the question. So, I think we have seen good performance at our Muscle Shoals plant and we continue to make progress. So that has helped in the first quarter definitely. The other big element I would single out is our progress on Vision ’25. As we mentioned, we accelerated and we started last year. Given the very challenging year we experienced last year, we accelerated our cost reduction program and the operating efficiencies program and Vision ’25 is shaping out to be a big success for us this year. So these two elements I think are the main drivers of performance. And Jack wants to add a couple of comments here.

Jack Guo: Yeah. Thank you, Jean-Marc, and thank you, Katja, for the question. So the only other thing I would add is we have done a bit better in the A&T business unit. And if you recall, we talked about this last year, the weakness in the demand in aerospace has caused us to kind of push some of the higher margin volumes to the right. And we said that’s not going away, it’s just the timing and now we’re seeing some of the benefits and we expect to see that throughout the rest of the year. And also, the business unit has done — along with everybody else, has done a great job in terms of cost control, as Jean-Marc mentioned.

Katja Jancic: Maybe just as a follow-up. Jack, you said on the aerospace side, does that mean that the inventory issue is behind?

Jean-Marc Germain: No, it’s not behind. I mean our own inventories are well in control, but the supply chain is still struggling to ramp up. You also saw the news that the Boeing deliveries in China are suspended or halted. I don’t know exactly how to describe it. So that’s not a good news for the supply chain. So, I think we are going to go through another year of difficulties in the ramp-up of the supply chain and that is increasing.

Katja Jancic: Okay. Thank you. I’ll hop back into the queue.

Operator: The next question comes from Corinne Blanchard from Deutsche Bank. Corinne, your line is open. Please go ahead.

Corinne Blanchard: Hey, good morning everyone. Congratulations on the strong quarter. Maybe to come back on the end market question. Could you share — so the aerospace was probably stronger than most people expected for 1Q and probably with a mix of defense and military. Is that trend to be expected to continue into 2Q and 3Q? And then, the second question would be on the auto impact and tariff and kind of where do you think things will shape and shake out for the second half of the year?

Jean-Marc Germain: Good morning, Corinne, and thanks for your kind words. So, aerospace, we think it’s going to be choppy — continue to be choppy this year, but we do believe that the progress we’ve made is sustainable and we do believe that our focus on high value-added products and those markets that are shining a bit more is paying off and we expect that to continue throughout the year. Exactly how it plays out by quarter is difficult to tell, but I think we’ve got a good outlook for the full year. And in terms of auto, it is a big mystery. We are seeing the reduction in the outlook. S&P recently downgraded their provisions for the market numbers in both Europe and the U.S. We had been conservative we thought going into the year and embedded into our guidance compared to the forecast at the time.

So, we are seeing the forecast converging with our own expectations. And we believe that the tariffs are certainly creating more uncertainty here in North America. But overall, given the platforms we are on, the launches that we are on, we believe, absent a major catastrophe and the market tanking to another 20% down compared to current expectations, I think we are reasonably safe for this year. It’s not going to be a pleasant year as we can see and especially in the AS&I segment, but I think we are controlling what we can control and our guidance is reflecting this.

Corinne Blanchard: Thank you. And then maybe just again on the auto and tariff. I mean from the tariff, how much cost impact you will get? Because I think I saw on one of your slides, you had about $2 million impact in 1Q and then from the rest of the year, we can expect another $20 million. So is there like a specific cadence we should be thinking about between the quarter or is that more like an even cost to add?

Jack Guo: Yeah. Corinne, so it’s related to the cross-border shipments, right, and there is a little bit of seasonality, but assume it to be fairly even. And you’re right, the gross impact before mitigation we’re assuming about $20 million headwind.

Operator: The next question comes from Bill Peterson from JPMorgan. Bill, please go ahead.

Bill Peterson: Hi. Good morning, Jack and Jean-Marc. Appreciate the opportunity to ask questions. So maybe following up on the tariff one. So I think the last quarter, you talked about the overall environment presenting opportunities for the team and now you’re talking about opportunities in cost. So I’m reading this as somewhat net neutral overall, but maybe unpacking this a bit further. So you have potential — the February price hikes, maybe you can elaborate on what percentage of the business, I think it’s mostly flat-rolled as you mentioned that you can — what the expected uplift to EBITDA? Maybe a little more detail on how you can maybe limit the impacts of this Canadian extruding business? Just trying to get a sense for maybe a little bit more detail on the puts and takes and maybe how to think about it from an overall perspective as you see it today realizing it’s a fluid situation.

Jean-Marc Germain: Yeah. Good morning, Bill, and thank you for this difficult question. So, I think compared to what we were describing in February, we’re still in the same place that we believe overall the tariffs that we’re seeing are presenting a net opportunity for us. We wanted this time to give you a bit more context about specifically the extrusions that we are importing from Canada to make auto parts in the U.S. and that is a flow that presents a substantial headwind to us with $20 million worth of additional cost to us. Now, to mitigate this — before I go into the other positive benefits of the tariffs, right, to mitigate this, we’re working very hard with our customers on pass-throughs. Ultimately, those tariffs will end up being reflected in the sticker price.

And we have some encouraging discussions and we even have 1 customer at this stage that has agreed to a full pass-through for these tariffs. So that $20 million will dwindle as we’re successful in passing through we hope all of it, most of it and at the very least, some of it. At the same time, we are going to look at resourcing from other sources that are not tariff impacted and then obviously working very diligently on our cost structure — on other pockets of our cost structure to offset this. Then, on the metal side, as you know, the scrap that we’re using, the absolute benefit we get from using scrap is getting bigger with the imposition on 232 tariffs on aluminum. So that creates an opportunity for us. And to the extent that our plants are running well, which they are, if we recycle more metal, we even compound this benefit by we get access to cheaper scrap related to prime and we make more of it.

So that’s an important offset to our cost side. And then, finally, I mean the whole point of tariffs is to make the domestic industry more competitive. And as we have said numerous times, we are local for local. Even — and as we do that, we become more competitive and there is more opportunity for us to expand our margins. Now, in addition, then one can say, well, but then what happens if there is a substantial reduction in demand for the end product because tariffs made the products more expensive and that’s especially true for automotive where we talk about what happens if the price of cars goes up by 25%. Now, in that case, something that is important to understand is that in our case, Constellium, the vast majority of what we sell is made in the U.S. and delivered to plants that are making cars in the U.S. And as a consequence if the total market for cars goes down because of tariffs, it is fair to say that the domestic production will be less impacted and hopefully could even benefit from it.

And that’s why it becomes very difficult to ascertain what the indirect two or three sequences down the road are for us, but we believe we’re in decent position to offset the direct impact of the tariff, benefit on scrap and margin expansion for our production here in the U.S. and potentially, given our customer mix, we may be less exposed than the overall market.

Bill Peterson: Yeah. Thanks for that. Maybe I can hit on one of the points you were talking about on scrap, because I think we exited last year and you were talking about maybe a $15 million to $20 million per quarter impact. But I think that it’s relatively tight exiting last year, maybe if you think about EVC to the Midwest transaction price, maybe close to 80% exit rate. But I think we’re now closer to the 70%, which I think was similar around this time last year. So, I guess, with that in mind, how should we think about — well, first of all, do you have any updated thoughts on how we should think about scrap spreads for this year? And then, assuming it stays a bit wider like we’re seeing now, what would be maybe the impact? I presume it would be either at the low end of the $15 million to $20 million or maybe even below that.

Jean-Marc Germain: So, think of the fact that we buy our scrap under annual, quarterly and spot market. So we never reflect the spot price. You will never see a direct impact between spot price and our scrap results, right? So, number one. So, we smooth the peaks and valleys. And what happened last year is we still benefited from aluminum we had contracted, scrap we had contracted at very good spreads in ’23, in ’24, but the new scrap we are contracting was extremely expensive. Now, this year, we’re seeing a reversal in the dynamics. Scraps are becoming cheaper, but we also have some scrap that we bought at a higher price and especially in the first quarter. So, I think some of that mechanics I don’t want to go into too much detail, but what we’re saying is that the scrap spreads today are better and this is helping us. This is a positive for us, but it is included in our guidance.

Bill Peterson: Okay. That’s helpful. And then, if I can switch to the packaging, I guess the P&ARP segment more broadly. You called out the improved shipments and mix and so forth and you’re calling out Muscle Shoals improvement in particular. I guess on the pricing and mix, can you understand the uplift? I thought that maybe [ABS] (ph) EBITDA margins were actually better than packaging or maybe the mix is more of a statement of specialty, I’m not sure. And then, on the Muscle Shoals performance, I guess how should we think about the shipment uplift and cost performance in the second quarter and beyond now that it seems to be operating well so I think you’re able to participate in this sort of improved demand environment, maybe perhaps also benefiting from fewer imports as a result of tariffs as well?

Jack Guo: Yeah, Bill. So, I’ll take the first part of your question and that’s related to price and mix for P&ARP and the good guide there. That’s mostly related to kind of micro mix within packaging. So, we saw more kind of end stock, if you will, which carry a higher pricing.

Jean-Marc Germain: Now, at the same time, automotive does have a higher margin and automotive is not as good this year as it was last year. So, you got all kinds of effects here. Going forward, we think the weakness in automotive is going to continue. I mean that’s part of our expectations, let’s put it this way, but that does create an opportunity for us to sell more can sheet. There is demand for more can sheet and we are very keen to support our customers in any way we can. I think that opportunity will continue to be here. As I said, we turned the corner in Muscle Shoals, production is much better and healthier and more stable than it ever was and I think that creates opportunities for us going forward.

Bill Peterson: Thanks, Jean-Marc and Jack.

Jean-Marc Germain: Thank you, Bill.

Jack Guo: Thank you, Bill.

Operator: [Operator Instructions] And the next question comes from Josh Sullivan from The Benchmark Company. Josh, please go ahead. Your line is open.

Josh Sullivan: Hey, good morning.

Jean-Marc Germain: Good morning, Josh.

Jack Guo: Hi, Josh.

Josh Sullivan: If you’re thinking about another year of aerospace supply chain difficulties, what was the incremental on that destock cycle from last quarter? If you’re thinking about a year from today, where were your thoughts last quarter? Just trying to think of the incremental sequentially on that year timeline.

Jean-Marc Germain: So, I’ll try to answer what I understand of your question. If not understanding it well, just tell me. We were thinking that it was going to be yet another year of challenges in the supply chain on the base of our discussion with our customers. So things have not fundamentally changed between what we’re thinking in November, December of last year and now. Maybe the exact shape of it is proving to be a bit different, but the challenges are definitely there. And you see it, I mean our shipments are down year-on-year compared to the first quarter of last year in aerospace, but that is what we are expecting.

Jack Guo: Yeah. And sequentially, I mean it’s relatively flat to the fourth quarter of last year and the third quarter of last year. So it’s weak, but quite stable with a better mix.

Josh Sullivan: Okay. And how would you be impacted if Airbus chooses to increase production at the…

Jean-Marc Germain: Did we answer your question, Josh?

Josh Sullivan: I mean, more or less, yes. But also if Airbus chooses to increase production at the Alabama facility, how would you be impacted by that?

Jean-Marc Germain: Well, we would get more volumes from them. We’ve got — our contract with them is requirements driven so the more they produce, the better it is for us. Now, how that happens, depends on what are the inventories in the supply chain and where it’s at. And as you know, there’s a lag between six months to two years roughly depending on the part. But this would be a net positive for us, yes.

Josh Sullivan: Okay. And then just one last one. What are you seeing as far as European demand in TID for defense applications or indications for longer-term order flow just as the continent looks to build out more of an internal defense industrial base?

Jean-Marc Germain: Yeah. So, we see some good signs today. It’s actually causing us to increase our inventories in the Valais for instance as we are restarting our operations because there’s a lot of demand for tanks and other vehicles. And then, longer term, I think it’s all a matter of how serious and committed the Europeans will be in implementing what they decided, which is I think it’s €800 billion of additional spending in defense, right? So, if they do that, that’s definitely a good thing for us. But as we all know between intentions and reality, there can be a gap and the gap can be just time or it can be a gap in terms of actually does it get implemented. So, we’ll have to see. But in all the discussions we have with our customers in the defense space in Europe, everybody is ramping up and trying to get ready for substantially higher levels of production and so are we.

Josh Sullivan: Great. Thank you for the time.

Jean-Marc Germain: Thank you, Josh.

Operator: As we have no further questions, I’ll hand the call back to Jean-Marc Germain for some closing comments.

Jean-Marc Germain: Thank you, Adam. Well, thank you, everybody, for your participation today. As you can see, we remain very focused in these uncertain and turbulent times, very focused on controlling what we can control, making sure we seize every opportunity that is ahead of us and making sure we build a company that’s going to emerge stronger after these vicissitudes in the market pass. Thank you very much, and I look forward to updating you on our progress in a few months.

Operator: This concludes today’s call. Thank you very much for your attendance. You may now disconnect your lines.