Kaiser Aluminum Corporation (KALU) Earnings

Management highlights

### Overall Quarterly Performance - Q2 2026 delivered record conversion revenue and adjusted EBITDA that significantly exceeded management expectations, driven by stronger-than-anticipated demand breadth and recovery pace across end markets, plus favorable metal dynamics and widened scrap spreads. - Management made deliberate, targeted investments in labor and production capacity to meet rising customer demand and capture market opportunities, with these investments expected to continue through the end of 2026. ### End Market Operational Progress - **Aerospace and High Strength**: The segment has shifted from recovery to sustained growth, with commercial aerospace destocking largely complete for most products and robust demand across defense, space, and bizjet applications. Capacity utilization at the upgraded Trentwood facility is growing across multiple end markets, and 2026 shipments and conversion revenue are expected to hit the high end of prior guidance. - **Packaging (Warwick Operation)**: The Roll Code 4 new coating line is ramping to 80% utilization, with management prioritizing quality and on-time delivery over rapid volume expansion. The facility delivered its highest ever conversion revenue in Q2 2026; 2026 conversion revenue growth is expected to hit the high end of the 20% to 25% prior guidance range, with full operational optimization and full capacity targeted for early 2027. - **General Engineering**: The segment has transitioned from post-pandemic recovery to structural growth driven by reshoring, domestic manufacturing investment, and semiconductor expansion. Semiconductor demand has shifted from inventory management to securing long-term capacity, leading to new long-term agreements with large OEMs. Annual conversion revenue growth guidance has been raised to 10-15% YoY, with shipments expected to hit the high end of prior outlooks. - **Automotive**: Kaiser maintains disciplined participation focused on its competitive, specialized niches, with continued healthy demand for light truck and SUV products, and capital investments for future growth progressing as planned per long-term customer commitments. ### Financial Performance Highlights - Adjusted EBITDA for Q2 2026 was $166 million, up $99 million YoY, with $41 million from pricing, volume, and mix improvements and $58 million from favorable metal-related tailwinds including a $27 million metal lag gain. - Net debt leverage improved to 2.1x, hitting the company's 2-2.5x target range ahead of schedule, supported by strong trailing twelve month EBITDA performance.

Guidance

- Full year 2026 conversion revenue growth is now expected to finish near the high end of the prior 10% to 15% range. Full year 2026 adjusted EBITDA is expected to increase 45% to 55% year-over-year. - Capital expenditures for full year 2026 are maintained at $120 million to $130 billion, no change from prior guidance. - Full year 2026 free cash flow is projected to be between $150 million and $175 million, subject to aluminum price movements and working capital impacts. - The effective tax rate for 2026 (before discrete items) is maintained at the mid-20% range, with 2026 cash tax payments now expected to be $14 million to $18 million, an increase from prior expectations due to improved performance. - Management assumes aluminum prices will remain relatively stable at current levels through end of 2026, with metal-related contributions normalizing after the large first half 2026 tailwinds; no continuation of metal lag gains is expected in the second half. - Second half 2026 will see higher planned maintenance spending, facility upgrades, and normal seasonal factors that reduce available shipping days relative to the first half, but this does not reflect a change in the underlying strong demand trajectory.

Segment performance

Total Q2 2026 conversion revenue was $437 million, a 17% increase year-over-year (YoY). - Aerospace and High Strength: Conversion revenue totaled $136 million, up 7% YoY. This segment contributed 31.1% of total Q2 2026 conversion revenue. The 7% growth was driven by a 2% increase in shipments, with strengthened commercial aerospace build rates and continued robust demand across defense, space, and bizjet applications. - Packaging: Conversion revenue totaled $174 million, up 34% YoY. This segment contributed 39.8% of total Q2 2026 conversion revenue. Growth was driven by an ongoing mix shift toward higher value-added coated products, with shipments up 10% YoY as the new Roll Code 4 coating line ramps to ~80% utilization. - General Engineering: Conversion revenue totaled $96 million, up 12% YoY. This segment contributed 22.0% of total Q2 2026 conversion revenue. Growth came from a 7% increase in shipments, driven by restocking from multi-year low inventory levels, strong semiconductor demand, tariff-related reshoring, and improved pricing and product mix. - Automotive: Conversion revenue totaled $32 million, flat YoY. This segment contributed 7.3% of total Q2 2026 conversion revenue. An 11% decrease in shipments was offset by a shift to higher value-added products; demand for Kaiser's products for light truck and SUV platforms remained healthy despite broader industry headwinds.

Risks & headwinds

- Aluminum price volatility could change working capital requirements and lead to results differing from management's current forward-looking guidance, as metal price movements are outside of the company's control. - Remaining equipment optimization and qualification work at the Warwick Roll Code 4 line could delay full utilization and margin improvement targets if issues arise. - Broader automotive industry headwinds including elevated consumer financing costs and tariff dynamics could impact overall segment volumes, even as demand for Kaiser's targeted products remains stable. - Unanticipated operational issues during planned second half maintenance and facility upgrades could disrupt production and impact performance.

Analyst Q&A

• Q: Given the large Q2 earnings beat, what factors drove better-than-expected performance across the business?

  A: Strength was broad-based across all segments. General engineering recovery and restocking from service centers with multi-year low inventories progressed faster than anticipated, with demand increasing sharply alongside the ongoing aerospace recovery. Packaging delivered strong performance as higher-value output ramped, and automotive demand for light truck and SUV products also picked up relative to expectations. The company added significant resources to increase throughput to meet this unanticipated fast demand growth.

• Q: What explains the implied EBITDA margin deceleration and lower unit conversion revenue in the second half 2026 guidance, and is this driven by underlying demand weakness?

  A: The deceleration only reflects the removal of the large non-recurring metal lag tailwinds from the first half, as inventory costs are now aligned with current market prices. It also reflects typical seasonal factors including fewer shipping days in the second half, and delayed major maintenance that was paused in Q2 and is now scheduled for the second half to keep assets in good shape for growing demand. Underlying demand remains robust, with bookings already extending into 2027 for many core products.

• Q: What operational improvements were seen at the Warwick Roll Code 4 line in Q2, and where is still improvement needed?

  A: Throughput increased across the entire roll coat portfolio, and the company made significant progress on customer and product qualification for new higher-value coatings. Some equipment design issues are still being resolved, and on-time delivery performance has improved to ~70% and is trending toward the 90% target. The facility has already hit the bottom end of the projected 300 to 400 basis point margin improvement from the transformation, ahead of full utilization, and management expects to exceed the original margin outlook.

• Q: Can packaging conversion revenue continue to improve in the second half after strong first half growth?

  A: Management confirmed there is no reason to expect packaging conversion revenue will not continue improving in the second half, driven by the ongoing shift to higher-value coated product mix and continued strong customer demand that outpaces available industry capacity.