Kaiser Aluminum Corporation (
Q3 2010 Results Earnings Conference Call
October 25, 2010 1 PM ET
Melinda Ellsworth – VP and Treasurer
Jack Hockema – President, CEO and Chairman
Dan Rinkenberger – SVP and CFO
Timna Tanners – UBS
Mark Parr – KeyBanc Capital Markets
Edward Marshall – Sidoti & Company
Tony Rizzuto – Dahlman Rose
Tim Hayes – Davenport & Company
Previous Statements by KALU
» Kaiser Aluminum Corporation Q2 2010 Earnings Call Transcript
» Kaiser Aluminum Corporation Q1 2010 Earnings Call Transcript
» Kaiser Aluminum Corporation Q1 2009 Earnings Call Transcript
» Kaiser Aluminum Corporation Q4 2008 Earnings Call Transcript
Please standby, we’re about to begin. Good day and welcome to the Kaiser Aluminum Q3 conference call. Today’s call is being recorded. For opening remarks and introductions I would like to turn the conference over to Ms. Melinda Ellsworth. Please go ahead.
Thank you. Good afternoon, everyone, and welcome to Kaiser Aluminum’s Q3 2010 Earnings Conference Call. If you have not seen a copy of our earnings release please visit the investor relations page on our website at
. We have also posted a PDF version of the slide presentation for this call.
Joining me today are President, CEO and Chairman Jack Hockema; Senior Vice President and Chief Financial Officer Dan Rinkenberger; and Vice President and Chief Accounting Officer Neal West. Jack and Dan will review the results and at the conclusion of our presentation we will open the call for questions.
Before we begin I’d like to remind the audience that the information contained in this presentation includes statements based on management’s current expectations, estimates and projections that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include the statements regarding the company’s anticipated financial and operating performance, relate to future events and expectations, and involved 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 the company’s earnings release for the Q3 of 2010 and reports filed with the Securities and Exchange Commission, including the company’s Form 10K for the year ended December 31, 2009, and quarterly report on Form 10Q for the quarter ended March 31, 2010. All information in this presentation is as of the date of the presentation. The company undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the company’s expectations.
Non run rate items to us are items that while they may recur from period to period, are particularly material to results, impact costs as a result of external market factors, and may not recur in future periods if the same level of underlying performance were to occur. These are certainly part of our business and operating environment but are worthy of being highlighted for the benefit of the users of our financial statements. Management’s intent is to significantly neutralize the fabricated products segment from fluctuations in underlying metal prices. We characterize metal profits and life flow charges as non run-rate items that eventually offset to a great extent over the course of a full year. Further, presentations including such items as net income, operating income before non run-rate or after adjustments, or earnings before interest, tax, depreciation and amortization are not intended to be and should not be relied on in lieu of the comparable caption under generally accepted accounting principles to which it is reconciled. Such presentations are solely intended to provide greater clarity of the impact of certain material items on the GAAP measure and are not intended to imply such items should be excluded.
I would now like to turn the call over to Jack Hockema. Jack?
Thanks, Melinda, and good afternoon everyone. Thank you for joining us on our Q3 2010 earnings call. Our remarks today will cover the Q3 results, an update on progress at our new Kalamazoo facility, and our short-term outlook for the business. We will also discuss our recently announced M&A activities and describe how we expect these investments to further enhance the company’s strategic positioning and short-term and long-term growth potential.
As anticipated, our Q3 fabricated products results reflected seasonal weakness and higher major maintenance costs. In addition we experienced some short-term cost inefficiencies compared to our strong performance during the first half of the year. These factors resulted in lower sequential operating income but improved results on a year over year basis.
You may recall that on the last earnings call when speaking about the general engineering and automotive outlook, I said that seasonality for those applications typically reduces our Q3 shipments approximately 10% compared to the first half run rate. We also anticipated major maintenance costs approximately $4 million higher during the quarter than the average quarterly rate during the first six months this year. What we didn’t anticipate is that manufacturing inefficiencies in the Q3 would break a string of six consecutive quarters of improving performance. These short-term inefficiencies were brought on by the lower volume, production delays from major maintenance, and continued ramp up of the Kalamazoo extrusion facility. We expect that our performance in this area will be back on track in the Q4 and will continue to improve as we progress into 2011.
We’re very encouraged by the progress we’ve made at our new Kalamazoo facility. While we’re still engaged in a difficult startup of a highly automated process, we are delivering product quality that exceeds our previously high expectations. While we’re a little behind schedule in bringing the extrusion operation up to full operating rate, we’re shipping to customers and expect to be near full operation by year end. We continue to be extremely optimistic about the long-term prospects for this facility and look forward to realizing its full potential.