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Kaiser Aluminum Beefs Up as Automakers Lose Weight

Shares of Kaiser Aluminum Corp. are nearing their prerecession heyday, thanks in part to small-but-growing sales in the automotive sector that have helped the Foothill Ranch-based company power through a stall in its aerospace business.

Automakers anxious to meet the federal government’s targets on fuel economy are driving the demand for aluminum to replace heavier steel components. A prime example: Ford Motor Co. is set to deliver a first-ever version of its popular F-150 truck with an all-aluminum body to dealers in coming months.

The shift to more aluminum comes as auto sales continue a post-recession hot streak.

Sales of new vehicles are on pace to reach 17.5 million, the highest level since 2006.

“Our content per vehicle, our value-added revenue dollars per vehicle are up 30% compared to last year, and last year was a record phase,” Jack Hockema, Kaiser’s president and chief executive, said during a recent earnings call. “Our biggest issue right now is making sure we get our platform in position to efficiently and effectively capitalize on all the opportunities that are there.”

The trend toward more aluminum in cars has combined with new efficiencies in Kaiser’s manufacturing processes, according to Hockema, who sees reason for optimism stretching into the future.

“Beyond 2014, we expect these positive trends to continue with steady long-term growth in (aluminum) content per vehicle as we launch new programs … and further capitalize on a strong and growing pipeline of opportunities.”

The market agrees.

The company neared the end of last week with a market value of about $1.42 billion as its shares touched a 52-week high of $81.62 and fell back only slightly. Shares reached an all-time high of $88.68 in mid-2007 and sunk to an all-time low of $15.01 in late 2008 as the recession gripped the national economy.

Operations

Kaiser Aluminum has 11 factories in the U.S. and one in Canada. It uses raw aluminum and scraps to manufacture aluminum plates used in construction of commercial planes, a traditional strength of the company.

Kaiser’s business with the auto industry revolves around extruded—or shaped—pieces of aluminum used for vehicle body panels, and components in bumper and anti-lock brake systems.

The company buys raw materials directly from primary aluminum producers. It also competes to some degree with big producers such as Pittsburgh-based Alcoa Inc., as well as Constellium NV in the Netherlands, among others.

Kaiser shipped some 303 million pounds of semi-fabricated products to manufacturers and metal distributors in the first half of this year, generating net sales of approximately $679.2 million.

It racked up $216.6 million of the total from aerospace and related sales, a 5% drop from the same period last year.

Automotive revenue more than made up the gap, with a 54.1% increase to $46.2 million.

Hockema said he expects to see similar returns from the automotive sector in the second half of the year.

Aerospace

Aerospace still accounts for some 60% of the company’s revenue. An excess of aluminum plate inventory in the supply chain has created a pressure on pricing, which Hockema said will extend into 2015. That compelled the company to focus on optimizing manufacturing efficiency and volume growth.

It recently expanded capacity at its Trentwood, Wash. plant, and savings are adding up to the tune of almost $5 million so far.

“Even though we’re in the early stages of implementing the phase five expansion at Trentwood, the … efficiency gains from this investment are exceeding our expectations and were an important contributor to the second-quarter results,” Hockema said.

The company recently announced it will spend another $15 million to boost its capacity for automotive products, and some of those investments are under way, according to Daniel Rinkenberger, executive vice president and chief financial officer.

“We have several extrusion presses of capacity that we need to add over the next couple of years and over the next five years just to meet what we think the demand will be for products that Kaiser supplies, but as we look [to] 2025, it’s really significant,” he said.

A modified press at the company’s factory in Texas has been put to work on new automotive work. A Richmond, Va. plant is making a similar transition.

Rinkenberger said production of components for ABS brake systems has a plant in Canada at full capacity, with overflow going to another in Kalamazoo, Mich.

“We have a lot of levers that we are pulling right now,” Rinkenberger said.

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