Executive Summary / Key Takeaways

• Kaiser Aluminum is positioned for a significant performance uplift in 2025, driven by the nearing completion and ramp-up of major strategic capital investments at its Warrick and Trentwood facilities.
• The company reported a strong start to 2025 with Q1 Adjusted EBITDA of $73 million, benefiting from improved product mix, favorable metal costs, reduced overhead, and a significant metal price lag gain, alongside a 5% increase in Net Sales year-over-year.
• Management projects 5% to 10% growth in conversion revenue and a 5% to 10% increase in Adjusted EBITDA for the full year 2025 (above re-casted 2024 EBITDA of $241 million), with earnings strongly weighted to the second half as new capacity comes online.
• Kaiser's focus on technically demanding niche markets across Aerospace, Packaging, General Engineering, and Automotive Extrusions, coupled with cost optimization and a predominantly North American footprint, provides resilience against market volatility and positions it to benefit from trends like reshoring.
• Key factors for investors to monitor include the successful commissioning and ramp-up of the new capacity, the timing and strength of end-market recoveries (particularly commercial aerospace), and the evolution of trade policies.

Setting the Scene: A Specialty Aluminum Leader's Strategic Evolution

Kaiser Aluminum Corporation is a leading producer of semi-fabricated specialty aluminum mill products, serving demanding applications across diverse end markets including Aerospace and High Strength (AeroHS), Packaging, General Engineering (GE), and Automotive Extrusions. The company strategically focuses on technically challenging applications that require core metallurgical and process technology capabilities, enabling the production of highly engineered mill products with differentiated characteristics. This focus allows Kaiser to command premium pricing and pursue long-term profitable growth.

The company's business model is built on delivering high-quality products and industry-leading service, aiming to be the supplier of choice for its blue-chip customer base. Approximately 70% of its shipments are sold directly to manufacturers or tier one suppliers, fostering long-standing relationships. Kaiser also employs a metal price neutrality strategy through hedging and related programs, seeking to earn profit predominantly from the conversion of aluminum into finished products rather than fluctuations in the underlying metal price.

Kaiser's history in key markets spans decades, with over 75 years in aerospace and approximately 50 years in automotive. This deep experience informs its strategic approach to identifying and serving niche segments with high barriers to entry. Over the past decade, the company has made significant capital investments to strengthen its competitive position and meet evolving customer needs. This includes multiple expansions at the Trentwood rolling mill, increasing capacity for heat-treated plate, and recent substantial investments at the Warrick facility to enhance its packaging product capabilities. These investments are not merely incremental; they are designed to drive a material step change in the company's operational and financial performance.

Competitive Positioning and Differentiated Offerings

Within the specialty aluminum market, Kaiser Aluminum competes against a range of domestic and international players, including major firms like Arconic (ARNC), Alcoa (AA), Norsk Hydro (NHYDY), and Allegheny Technologies (ATI). Kaiser's competitive strategy centers on its expertise in producing highly engineered products for demanding applications, its established North American manufacturing footprint, and a focus on cost efficiency.

Kaiser differentiates its product portfolio through its broad offering and "Kaiser Select" products, engineered to deliver enhanced characteristics, improved consistency, and better performance for customers, often resulting in lower waste and production costs for them. While specific quantifiable performance metrics compared to all competitors' offerings are not detailed, the nature of these benefits supports Kaiser's ability to garner premium pricing and maintain strong customer relationships in its targeted niches.

Compared to peers like ARNC, which also serves aerospace and automotive, Kaiser emphasizes cost leadership and market share capture in segments like general engineering where its North American presence is strong. While ARNC may hold an edge in R&D spending and product development speed, Kaiser's focus on operational execution and cost control has contributed to solid cash flow generation. Against integrated producers like Alcoa, Kaiser's strength lies in its fabrication expertise and customer-focused innovation in specific product categories like automotive extrusions, fostering loyalty. While Alcoa benefits from scale and raw material access, Kaiser's profitability metrics and North American market positioning are competitive.

In segments like automotive and general engineering, Kaiser's products, such as coated coils for packaging, offer efficiency benefits. While Norsk Hydro emphasizes sustainability, Kaiser leverages its direct sales networks and North American focus. Against high-performance alloy producers like ATI in aerospace, Kaiser competes on cost-effectiveness in certain extrusion applications, though ATI's alloys may offer higher strength-to-weight ratios.

Kaiser's competitive advantages, or moats, include its cost efficiency, which translates to lower operating costs and supports margin targets, and its quality innovation, particularly with Kaiser Select products, which helps defend market share against competitors. Vulnerabilities include potential supply chain dependencies and the need to maintain technological competitiveness against peers with higher R&D budgets. High capital requirements and regulatory hurdles in the industry act as significant barriers to entry, favoring established players like Kaiser and helping to defend its market position.

Recent Performance and Operational Momentum

Kaiser Aluminum has demonstrated solid operational performance, particularly in the first quarter of 2025, setting a positive tone for the year. Net sales for the quarter ended March 31, 2025, totaled $777.4 million, a 5% increase compared to $737.5 million in the prior year period (as adjusted). This growth was primarily driven by an 11% increase in the average realized sales price per pound, partially offset by a 5% decrease in shipment volume.

Operating income saw a significant improvement, rising to $41.4 million in Q1 2025 from $24.3 million in Q1 2024. This was supported by a lower percentage of Net Sales attributed to Cost of Goods Sold (87% in Q1 2025 vs 88% in Q1 2024) and a decrease in Selling, General, Administrative, Research and Development expenses.

Adjusted EBITDA for the first quarter of 2025 reached $73 million, a substantial increase from $54 million in the prior year period. This improvement was attributed to a combination of factors including improved product mix and pricing, favorable metal costs, and reduced overhead. Notably, Q1 2025 Adjusted EBITDA included a favorable Metal Price Lag of $21.1 million, compared to $5.4 million in Q1 2024, primarily due to a spike in the Midwest Transaction Price following aluminum tariff announcements. Excluding this specific tailwind, the underlying business performance still showed positive momentum.

Looking back at 2024, the company achieved Adjusted EBITDA of $217 million, up $7 million from 2023, with EBITDA margin expanding by 60 basis points to 14.9%. This reflected improvements in product mix despite challenges in certain segments and higher costs. Quarterly results in 2024 were impacted by factors such as GAAP LIFO charges resulting from inventory reductions and operational outages, particularly in the packaging segment.

Financially, Kaiser maintains a strong liquidity position. As of March 31, 2025, total liquidity stood at $576.7 million, comprising $21.3 million in cash and cash equivalents and $555.4 million available under its revolving credit facility. The company had no outstanding borrowings on the facility at quarter end. The net-debt leverage ratio improved to 3.9 times at March 31, 2025, down from 4.3 times at the end of 2024, moving towards the target range of 2.0 to 2.5 times. Cash flow from operations was $57.0 million in Q1 2025. Capital expenditures totaled $38.2 million in the quarter, focused on strategic growth projects.

Strategic Investments and Forward Outlook

The core of Kaiser Aluminum's investment thesis for 2025 and beyond lies in the anticipated benefits from its recently completed and nearing completion strategic capital investments. The company is bringing two major projects online: the fourth coating line at the Warrick rolling mill and the Phase VII expansion at the Trentwood facility.

The Warrick fourth coating line is currently undergoing commissioning and moving into customer qualification. This investment is critical for Kaiser's growth strategy in the packaging market, where demand is high and North American supply remains constrained. The line is expected to convert approximately 25% of the existing Warrick capacity to higher-margin coated products. Management anticipates beginning shipments from this new line in the second quarter of 2025, with full production ramping up through the remainder of the year and reaching a full run rate by late in the second half of 2025. This project is expected to yield a significant 300 to 400 basis points of EBITDA margin expansion to the consolidated business at full run rate, with the full benefit sustainable from Q4 2025 onwards.

Concurrently, the Trentwood Phase VII expansion project is progressing smoothly. Equipment is on site, and installation prep is underway. This expansion, expected to be completed in the second half of 2025, will add another 5% to 6% capacity for heat-treated plate products used in aerospace and general engineering. The timing is considered ideal as these key end markets are expected to recover over the next several quarters.

Management's outlook for 2025 reflects the anticipated impact of these investments and market conditions. The company projects 5% to 10% year-over-year growth in conversion revenue. Furthermore, full year 2025 Adjusted EBITDA expectations have been raised to be 5% to 10% above the re-casted 2024 Adjusted EBITDA of $241 million. Earnings are expected to be strongly weighted towards the second half of the year, excluding the Q1 metal lag tailwind, as the new investments come online and ramp up production. Total capital spending for 2025 is anticipated to be between $120 million and $130 million, reflecting the final costs for these major projects. The company expects to generate over $100 million in free cash flow in 2025, supporting further deleveraging.

End market outlooks remain consistent: Aerospace is expected to see a recovery in commercial aircraft build rates in the second half of 2025 following near-term supply chain disruptions and destocking, with strong long-term fundamentals. Packaging demand remains strong, with the new coating line addressing capacity constraints. General Engineering is seeing destocking abate in long products and initial recovery signs in semiconductor plate, benefiting from trade-related uncertainty favoring domestic supply. Automotive Extrusions, while a smaller segment, is positioned in resilient SUV and light truck platforms and benefits from favorable contract resets.

Risks and Challenges

Despite the positive outlook, Kaiser Aluminum faces several risks. Market volatility, driven by macroeconomic conditions and recent trade policy actions, could impact demand across end markets. While management sees trade policies as potentially neutral to positive, the situation remains fluid. The commercial aerospace supply chain continues to experience disruptions and lower-than-expected build rates, which could impact the timing and strength of the anticipated recovery in that segment.

The company is exposed to fluctuations in the prices of aluminum, alloying metals, natural gas, and electricity. While hedging programs are in place, they may not fully mitigate all exposure, and metal price lag can impact short-term results. Environmental contingencies related to historical operations, particularly at Trentwood and Newark, represent potential liabilities. While accruals are made, it is reasonably possible that undiscounted costs could exceed current estimates by up to $13.4 million over the remediation period, and these estimates may change.

Operational challenges, including the successful commissioning and ramp-up of the new Warrick coating line to full production, could impact the timing and magnitude of the expected margin expansion. Competition from other aluminum producers and alternative materials also presents a continuous challenge.

Conclusion

Kaiser Aluminum is at an inflection point, with significant strategic investments poised to transform its operational capacity and financial performance. The strong start to 2025, marked by improved profitability and a raised full-year outlook, underscores the momentum building within the business. By focusing on technically demanding niche markets, leveraging its North American footprint, and maintaining cost discipline, Kaiser is strategically positioned to capitalize on favorable market trends and increasing demand for its specialty aluminum products.

The successful commissioning and ramp-up of the Warrick coating line and the Trentwood Phase VII expansion are critical to realizing the projected step change in EBITDA and margin performance. While market volatility and aerospace supply chain dynamics present near-term uncertainties, the company's diversified portfolio, long-standing customer relationships, and disciplined capital allocation strategy provide a solid foundation. For investors, the narrative centers on the expected acceleration of earnings and free cash flow generation in the second half of 2025 and beyond, driven by these strategic initiatives and a focus on high-value-added products, positioning Kaiser Aluminum for continued deleveraging and enhanced shareholder value.