Kaiser Aluminum Corporation (KALU) Q4 2017 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen and welcome to the Kaiser Aluminum Fourth Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce your host for today’s conference Ms. Melinda Ellsworth, Vice President of Investor Relations and Corporate Communications. Ms. Ellsworth, you may begin.

Thank you. Good afternoon, everyone and welcome to Kaiser Aluminum's fourth quarter and full-year 2017 earnings conference call. If you've not seen a copy of our earnings release, please visit the Investor Relations' page on our website at kaiseraluminum.com. We have also posted a PDF version of the slide presentation for this call. Joining me on the call today are Chief Executive Officer and Chairman, Jack Hockema; President and Chief Operating Officer, Keith Harvey; Executive Vice President and Chief Financial Officer, Dan Rinkenberger; and Vice President and Chief Accounting Officer, Neal West. Before we begin, I'd like to refer you to the first two slides of our presentation and remind you that the statements made by management and the information contained in this presentation that constitute forward-looking statements are based on management's current expectations. 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 and reports filed with the Securities and Exchange Commission, including the Company's Annual Report on Form 10-K for the full-year ended December 31, 2016. The Company undertakes no duty to update any forward-looking statements to conform the statement to actual results or changes in the Company's expectations. In addition, we have included non-GAAP financial information in our discussion. Reconciliations to the most comparable GAAP financial measures are included in the earnings release and in the appendix of the presentation. Any reference in our discussion today to EBITDA means adjusted EBITDA, which excludes non-run rate items from which we have provided reconciliations in the appendix. At the conclusion of the Company's presentation, we will open the call for questions. I would now like to turn the call over to Jack Hockema. Jack?

Thanks Melinda. Welcome to everyone joining us on the call today. We'll begin with comments on the fourth quarter and the full year 2017 results and conclude with a discussion of our outlook. Turning to Slide 5. Fourth quarter results were as expected with normal seasonal demand weakness, high planned major maintenance expense and the continuation of some inefficiency at Trentwood completing ramp up of the new equipment installed earlier in the year. Turning to Slide 6. And a review of the full-year 2017, we achieved record shipments and near record EBITDA and margin despite headwinds from aerospace supply chain destocking reduced year-over-year North American vehicle build rates, competitive price pressure and construction-related disruption at Trentwood that caused manufacturing and inefficiencies. Record shipments of our general engineering and automotive applications more than offset weak demand for aerospace applications due to the supply chain destocking. Value-added revenue declined as a result of price pressure on high value-added products and a leaner mix due to reduce shipments of high value-added aerospace products. Sales margins were squeezed by competitive price pressure and higher contained metal costs, however more efficient raw material utilization and favorable scrap raw material prices partially offset the impact from reduced sales margins. Our manufacturing cost efficiency improved compared to our step change improvement in 2016 as strong performance across the manufacturing platform more than offset construction-related inefficiency at Trentwood. Capital spending of $76 million was primarily focused on modernizing the hot line and thin plate flow at Trentwood. While additional investments are planned to complete the five-year $150 million modernization program. These two projects were the most significant in terms of construction-related downtime and future quality cost and capacity benefits. With this work behind us, we're well positioned to handle the strong product demand expected in 2018 and 2019. In addition to the investments to support further organic growth, in 2017 we returned $115 million to shareholders through dividends and share repurchases. Consistent with our priorities for capital deployment, we have continued to steadily increase our quarterly dividend over the past seven years, including an additional 10% increase in early 2018. Going forward, we will continue to invest in initiatives focused on driving organic growth and asset integrity, and we will seek inorganic growth opportunities that create value for our shareholders. In addition, we will continue to prioritize returning cash to shareholders via quarterly dividends and disciplined share repurchases. I'll now turn the call over to Dan for further discussion of the results. Dan?

Thanks Jack. In 2017, shipments improved 2% to set a new record of 626 million pounds. Total value added revenue, however, declined slightly from the prior year, reflecting a leaner sales mix, with lower year-over-year aerospace shipments, stronger general engineering volume, and growing automotive bumper shipments. Additionally, competitive pricing on spot sales of some of our aerospace and general engineering products, prevented this from fully recovering metal prices that continued to increase during the year. Although the overarching secular growth trend continues for aerospace, destocking in the aerospace supply chain persisted during 2017. In addition to the destocking dynamic, our plate capacity was temporarily constrained during 2017 as we installed upgraded equipments and controls on our hotline and other locations at our Trentwood facility. Although we had initially expected our 2017 shipments would be comparable to 2016, the combined impact of destocking and capacity constraints resulted in a 4% decline in our aerospace shipments. Additionally, we experienced value-added price compression on spot sales of some aerospace products as competitive price pressure hampered recovery of rising metal costs. The result of lower aerospace shipments and tighter spot pricing was an 8% or $37 million decline in aerospace value-added revenue compared to 2016. North American light vehicle builds declined 7% in 2017, slightly more than we organically anticipated. But with continued increases in aluminum extrusion content per vehicle, our aluminum extrusion shipments increased 9%. This was slightly below the double-digit shipping growth we anticipated at the onset of the year. But the value-added revenue for automotive extrusions was in line for our expectations at the beginning of the year, growing 5% year-over-year to $118 million driven by bumper programs shipments that more than doubled during 2017. General engineering value-added revenue for the full-year improved 2% to $215 million, on the 6% increase in shipments. Plate growth was partially offset by shipment declines in other high value-added products, resulting in a weaker general engineering sales mix. Additionally, value-added pricing was squeezed on some of our general engineering products as competitive pricing pressure prevented full recovery of rising metal costs. For the fourth quarter, while total shipments increased slightly compared to the prior year period, total value-added revenue declined 4% as aerospace destocking resulted in a leaner sales mix and value-added price compression on spot sales continued. Aerospace value-added revenue in the fourth quarter was a solid $110 million, a 12% improvement over the third quarter, but 8% lower than the fourth quarter of 2016. For automotive extrusions, an 11% year-over-year improvement in value-added revenue reflected growth in bumper program shipments. And general engineering value-added revenue declined slightly in the fourth quarter despite a 4% increase in shipments due to a leaner mix of general engineering products. Turning to Slide 8. Despite the continued aerospace overhang and competitive pricing that hindered the full recovery of metal price increases, we performed well in 2017. EBITDA of $199 million was our second best, only 4% behind the record set in 2016 of $207 million. Additionally, our EBITDA margin was 25.3%, which was nearly equal to the record of 25.4% set in 2016. The $8 million decline in full-year EBITDA reflected an adverse $21 million of sales impact as compressed sales margins were partially offset by favorable scrap pricing. Additionally, major maintenance expense in 2017 was slightly higher than the prior year. But we made further improvements in our overall manufacturing cost efficiency in 2017 after the step change improvement achieved in 2016. This improved manufacturing efficiency, along with favorable overhead and other costs partially offset the adverse sales impact and higher major maintenance expense. For the fourth quarter of 2017, adjusted EBITDA was $48 million and EBITDA margin was 24.6%, down from $52 million and 25.8% respectively in the fourth quarter of 2016. Compressed sales margins partially offset by favorable scrap pricing, resulted in a $6 million adverse sales impact. In addition, improvements in overhead and other costs were largely offset by $4 million of higher major maintenance expense. Moving on to Slide 9, for the full-year, operating income as reported was $151 million. Adjusting for $8 million of net non-run rate charges however, adjusted operating income was $159 million, a decline of $12 million compared to the prior year. In addition to the $8 million decline in EBITDA previously discussed, the year-over-year reduction in adjusted operating income also reflected $4 million of incremental depreciation expense. As reported, operating income was $40 million for the fourth quarter, but adjusting for $3 million of non-run rate items, fourth quarter operating income was $37 million. Both adjusted and as reported operating income declined $5 million compared to the prior year fourth quarter as the adverse year-over-year sales impact was partially offset by improved costs. During the fourth quarter, we recorded approximately $37 million of incremental income tax expense related to the recently enacted tax law changes. The majority of this resulted from revaluing the deferred tax assets related to our net operating loss carryforwards, to reflect lower future tax savings using the new 21% federal corporate tax rather than the old rate of 35%. This charge and others related to the tax law change drove our full-year 2017 effective tax rate to 56% from 38%. Our net operating loss carryforwards totaled $275 million at year-end 2017. Although the new tax law limits the use of newly created NOLs, our NOLs and other pre-existing NOLs were grandfathered, so our NOLs will continue to be fully available to apply future of pretax income without limitation. Going forward, we expect that our interest expense will continue to be fully deductible and we estimate our blended state and federal statutory tax rate will be in the mid-20% range. Our cash tax rate however, will remain in the low-single digits until we use all of our net operating loss carryforwards. Continuing with the 2017 results, full-year reported net income was $45 million or $2.63 per diluted share compared to 2016 reported net income of $92 million or $5.09 per diluted share. Adjusting for a non-run rate items in both periods, as well as the incremental tax charge related to the tax law change. Full-year adjusted net income for 2017 was $88 million, a slight improvement compared to $87 million in 2016. 2016 included $11 million of debt redemption and refinancing. Adjusted earnings per diluted share increased to $5.09 in 2017 from $4.83 in the prior year. In addition to slightly higher adjusted net income, earnings per share improvement also reflected fewer outstanding shares as a result of ongoing purchases during the year under our share repurchase program. And as Slide 10 shows, our 2017 adjusted EBITDA of $199 million funded all of our ongoing cash requirements during the year, including sizable capital investments, working capital needs and interest and dividend payments. Last year, our annual variable contribution to the salaried and Union VEBAs totaled $20 million. Later this quarter, we will contribute $2.9 million to the sale in VEBA based on our 2017 results and $12.8 million to the Union VEBA based on the results of the first nine months of 2017. Our obligation to the salary at VEBA will continue into the future with contribution capped $2.9 million. The $12.8 million payment to the Union VEBA, however will our final contribution to them. We will continue and have continued to maintain financial strength and flexibility. Our total cash and short-term investments were approximately $235 million at year end or added to additional liquidity additional liquidity provided by our revolving credit facility with $290 million of borrowing availability. The facility remains undrawn and does not mature until December of 2020. On Slide 11, we will continue to follow our disciplined and balance capital allocation philosophy with a focus first on improving our business through our capital investment program. From 2007 to 2017, our capital investment has been more than double our depreciation expense. In 2017, our capital spending totaled $76 million and was concentrated on the Trentwood modernization project, with other sustaining capital deployed across our manufacturing platform. In addition to investing in our business, we provided cash return to shareholders through quarterly dividends and our share repurchase program, having distributed over $600 million to shareholders since 2007. In 2017, we paid $35 million of dividends to shareholders. And after increasing our quarterly dividend in each of the last six years in January of this year, our board demonstrated continued confidence in our long-term business outlook by further increasing our quarterly dividend 10% to $0.55 per share. We also distribute cash to shareholders in a disciplined manner through our share repurchase program. In 2017, we purchased over 900,000 shares of our common stock for $80 million at a weighted average price of $83 per share. Approximately $110 million remained available for further share repurchase under our existing board authorization as of year-end 2017. And I'll turn the call now back over to Jack to discuss our market trends and outlook.

Thanks Dan. Turning to Slide 12, in the outlook for our aerospace and high strength applications, we expect improving demand in 2018 and 2019 as supply chain destocking runs its course in 2018 and as airframe manufacturers continue to ramp-up build rates to address the large nine-year order backlog. In addition, the new defense budget strengthens the demand outlook for the F-35 Joint Strike Fighter and other military applications. We are very well-positioned in the marketplace and with supply chain destocking moderating as we proceed through the year; we expect mid-single-digit year-over-year growth in our 2018 shipments for these applications. Turning to Slide 13, in our outlook for our automotive extrusion, North American build rates are expected to improve 1% to 2% year-over-year following the 4% decline in builds in 2017. We expect mid single-digit year-over-year growth in our automotive shipments and value-added revenue in 2018 as we prepare for a significant number of new price management, break, chassis and structures applications launching in 2019. Turning to Slide 14, our shipments in value-added revenue for general engineering applications have gone at a 6% compound annual growth rate over the past three years. We’re cautiously optimistic going forward as current demand and bookings are strong for our general engineering applications. Moving to Slide 15, in our outlook for 2018 we expect to experience improving demand for aerospace applications throughout the year as destocking begins to moderate and we expect continuing sales margin pressure on non-contract high value-added products due to continuing escalation of contained metal costs. Driven by benefits from the investments at Trentwood in 2017, we expect to continue to build on our strong trend of improving manufacturing cost efficiency. Major maintenance costs in 2018 are expected to be similar to 2017. While there will be routine scheduled equipment outages related to these projects, such as a few days for scheduled maintenance on our thick plate structure and the hot line, we do not anticipate major disruptions as experienced last year. We'll keep you informed if and when there are noteworthy planned outages. In total, we expect mid single-digit year-over-year shipments and value-added revenue growth in 2018 with EBITDA margins in the mid 20s. We have long track record of offsetting sales margin erosion with margin gains from operating leverage and cost efficiency. On Slide 16, in our business update which will be posted on our website following this call. We illustrate that price comparison since the extraordinarily high prices in 2007 as had downward margin pressure of approximately 760 basis points more than offset by operating leverage and cost efficiency benefits. As a consequence despite more than 7% of sales margin erosion over that 10-year timeframe, our EBITDA margin expanded by 5% from 20% to 25%. More recently in 2016, we had record EBITDA margin with very favorable market conditions. In 2017, with severe headwinds from aerospace supply chain destocking, sales margin erosion of more than 200 basis points and construction-related inefficiency at Trentwood, our 25.3% margin was down only 10 basis points or essentially equal to the record margin that we had with very favorable market conditions, both volume and price in 2016. So what do we see for margin dynamics in 2018? We expect improving demand in aerospace and strong demand for general engineering and automotive products. The market climate should facilitate price increases to begin to begin to recover the increasing contained metal costs that we experienced throughout 2017 when value-added pricing compressed to a level equivalent to the historic lows set in 2017. We now defined ourselves at those historic levels. While it's difficult to anticipate competitive behavior in the very short-term, the pressure from continued escalation and underlying metal costs will eventually result in success as we continue to drive for higher prices on these high value-added products. In addition to our initiatives to address the rising cost of metal, we expect the overall strength of demand throughout our product mix will provide operating leverage and we are positioned to generate additional cost efficiencies as Trentwood begins to capture the benefits from 2017 investments. As a result in 2018, we experienced a familiar situation, rising contained metal costs as a drag, offset by our strong initiatives to drive price increases, gain operating leverage facilitated by the very strong underlying demand and gain additional cost efficiency throughout the platform. Our current expectation is that we'll achieve EBITDA margins in 2018 similar to or better than 2017. Shifting to our outlook for capital spending, we expect the pace of approximately $80 million per year over the next three years with a focus on quality and cost efficiency and with sustaining capital reinvestment equal to approximately 75% of our depreciation expense. Turning to Slide 16 and a summary of our comments today. Despite significant headwinds in 2017, we achieved record shipments, record net income, record earnings per share, and near record EBITDA and margin. We expect the headwinds to moderate as we proceed through 2018 and we anticipate strong results driven by improving demand and continued improvement in underlying manufacturing cost efficiency. Our long-term outlook remains bright driven by continued secular demand growth for our aerospace and automotive applications and opportunities to continue to achieve increasing cost efficiency in our manufacturing operations. We will now open the call for questions.

Thank you. [Operator Instructions] Our first question comes from Curt Woodworth with Credit Suisse.

Yes. Good afternoon, Jack.

Hi Curt.

I just want to continue the pricing discussion, because in your outlook slides, you commented that you see incremental pricing pressure in aero and GE plate. But then you also made a statement in your prepared remarks that you think you're going to be able to recover some of these rising margin pressures on contained metal. So can you kind of square those two views, do you have price hikes that you've announced that you're getting traction on? Or what's the timing on when you think you could start to recover some of the contained metal pressures?

We had significant run up in contained metal costs throughout 2017. We actually recovered a significant portion of that, although it's still had a big drag on our cost. So we weren't totally underwater on the contained metal costs increases. We’ve had a big run up here, recently in part driven by all the A232 discussion. Who knows where that ends up once we get a final decision by the administration on A232, but we're moving aggressively to recapture those costs. And when we look, as I said in the prepared remarks, we're looking at pricing today, at the all-time low that we hit in 2014. So we’re not the only company in the industry that's experiencing that kind of price compression. And one would think that as we see these dramatic increases going up $0.10, $0.15 a pound. We're going to continue to have more and more success in passing through those underlying costs. The entire industry is experiencing that same kind of cost pressure. So who knows how rapidly we'll be able to recover it. But again our track record over time is that we have successfully overtime recovered those costs. But then the flip side is, as I said last year, we had significant price erosion. Just look at Dan's bridge when he went through EBITDA. And I think we showed over $20 million of volume price mix issues last year. And from a margin standpoint, we still essentially offset that with our cost efficiency and total cost. And we've got a 10-year track record of doing just that. We expect good operating leverage this year, markets are strong, especially general engineering and automotive and we’re seeing strength improving in aerospace and we won’t have the inefficiencies we had at Trentwood last year. We have the benefit of the investments in Trentwood. So this isn't all going to happen overnight. But as we look at the full-year, we're pretty optimistic that we're going to be seeing margins for the year similar to or probably – hopefully better than what we saw last year.

Okay. That’s helpful. And then just one other follow-up on Trentwood, can you quantify sort of the inefficiencies or EBITDA impact of the modernization that you did on the hotline and the thin plate mail? Is that – you've been with that you were able to get a lot of productivity offset. But how big of a tailwind do you think that will be to your cost structure or EBITDA leverage, 2018 relative to 2017 if you can?

We don't want to quantify that right now. I'd rather just leave it with my comments on what we said about margin. There's a lot of dynamics going on there, what's the operating leverage, what's the cost efficiency we get from the whole platform and then how much of this contained metal costs are we able to recover with our strong initiatives to raise those prices and recapture those costs. But it's going to be significant as we look forward, and it will be ramping up as we go through the year.

Great, many thanks. Good luck.

Thank you. Our next question comes from Novid Rassouli with Cowen.

Good afternoon. Thanks for taking my questions. So sticking with kind of what Curt had just asked. So do we need price increases to hit 2018 guidance? I'm just wondering how we get to 2018 guidance if pricing is down in all the segments.

Pricing won’t be down in all segments. I mean let me take a step back. 85% to 90% of our – I’m going to go to shipments now. 85% to 90% of our shipments have metal pass-through by contract or by industry practice, okay? So the remaining 10% to 15%, roughly third of that, we've had very good success from our – in terms of passing through that cost. So that leaves us with 10% of our total product mix where we are susceptible. And we've seen some lag there, but we move aggressively on that 10% of our mix as well. So in total, it depends on where metal prices go, it depends on how successful we are and how much lag there is. But again, with prices as low as they are now, with the compression that we saw in 2017, there should be – and with strengthening demand across the marketplace, there should be good fundamentals for us to recapture these metal prices, if and when they continue to rise.

Great, and then my second question, I’m just wondering, as far as the Trentwood improvement, how should we be seeing this flow through, because based on the guidance, it seems like it implies you said basically EBITDA margin is flat, I mean we did 25.3% this year. Your said mid 20s. So I’m wondering the kind of the greater efficiency in the profits that should be coming through to Trentwood. Where should we be seeing that? And why would we not be seeing EBITDA margins to be higher because of that coming through? Thank you.

Yes, my comment was EBITDA margins equivalent to or better than. So the real concern or the real question is how much lag will we have in recapturing those metal costs? So we expect we will have more distress early in the year as we chase the rising metal prices if they continue to rise then we would have in the second half of the year. And we’ll see growing benefits from Trentwood in the second half of the year.

Thank you. Our next question comes from Edward Marshall with Sidoti.

Hey, Jack, Dan and Melinda how are you?

Good afternoon.

So I wanted to kind of get back to the pricing [indiscernible] on this. But it sounds like to me that you're saying pricing somewhat stabilized. They'll be – if prices start to increase, or prices pressure continues, you're continued to pass that through, but with some lag. And as I look at some of the contract business, things like aerospace extrusions, it typically lags a little bit longer. So I guess, is it right to think that pricing is choppy this coming year and it's not as big of an issue as it's kind of laid out so far.

Well, it really depend Ed, I think the average metal cost in the fourth quarter is a $1.05 and right now we are around $15 has been $0.10 run up since really the A232 announcement by the Department of Commerce. So how long that lost whether ramps up from there or whether comes back down that’s all an unknown at this point, but right now we are looking at $0.10 that another $0.10 that we need recover and we took some of the fourth quarter run up that we need to recover, because that was up substantially from earlier in the year. So you are right, it’s a bit of lag but we really can’t predict were metal prices are going here. All we know is we're going to move aggressively to recapture those costs as we go forward. On the other hand we remain pretty confident about the operating leverage given the strength of the demand right now and the cost efficiency that will see building as we go through the year.

And I guess circling back to the EBITDA discussion and what you’ve said kind of longer term from the 5% improvement overtime. Historically, I guess Kaiser has been pretty good about passing pricing through on a continuous basis. Is that the right way to think about kind of the pricing dynamics? I know there's a big move today, but historically you’ve been a pretty good passing pricing through.

Well, we are aggressive and doing that, but we actually in the business update we start with 2007 which was extraordinarily high prices because of the market conditions at the time. But we really loss 760 basis points of margin – sales margin compared to that 2007 level over a 10-year period. So if you go back to the last two or three years, yes, we’ve been relatively successful, but typically there's a lag. In 2014, we saw it when there was destocking. So there was weaker demand in the industry and there was escalation in metal costs. We got hammered. And that led to the historic low prices that we saw in 2014. Recovered a little bit in 2015. But then in 2016, metal costs went down and we saw a significant sales margin expansion. In 2017, again we're faced with destocking and escalating metal costs and we lost about little more than 200 basis points on our sales margins. So we weren’t totally successful. Last year, again it was running up so rapidly. And we tried to move, when we can only move as far as the market will let us. So there was a lag getting it back. We don't have it back fully, but we're continuing to aggressively pursue recovery of those cost. And with prices as low as they are now, we expect that we are going to see more and more success as other people discover prices are really low right now.

Got it. So even on a difficult price environment you're still able to capture the margin which you are looking for is what you are saying? On the aerospace kind, the split, 30% that’s other, I know military is embedded in that. How much of that is at 35 business historically?

In terms of total demand? It's a relatively small portion of the total demand. And historically it's even relatively small portion of our total mix, but it’s a growing portion of our mix, and one that we see has been positive and with the new defense budget, I had a comment in my opening remarks here, with the defense budget that now has the F-35 funded. Although, a little bit lesser rate than we anticipated, that’s a bad news. But the good news is, a lot of the vintage platforms have been funded now in this new defense budget. So we are pretty optimistic about the outlook here for military demand over the next few years.

Got it. Okay. Thanks very much. And Dan thanks for the update on the NOI. Appreciated. Thank you.

You bet.

[Operator Instructions] Our next question comes from Josh Sullivan with Seaport Global.

Hi, good afternoon.

Hey Josh.

You made a couple of brief comments on 232. But just given your vantage point in the industry, what's your position right now and then maybe what's the impact on Kaiser?

Well, I’ll start with everything's hypothetical at this point. We don't know if it's going to be global or targeted. We don't know if it's going to be quotas or tariffs. So anything we would expect now is hypothetical. What we do know is if they – if the President follows through in some form on the Department of Commerce recommendations, it does cover all of our products, which represent all of our products sold in the U.S. that represents more than 80% of our sales. So more than 80% of our sales will not be affected by A232 or maybe even benefit with less import pressure on certain of the products in that 80% of our sales. In the other, less than 20% of our sales that are foreign sales, virtually all of that or just say all of that is under contract with metal pass-through provisions. So in the near-term, while those contracts are still in effect, it won't have an impact. Longer-term, it could have an impact if we're looking at higher contained metal prices then the global metal costs then will be a somewhat of disadvantage, but most of those products that go offshore are very high value-added products. And I think the tariff and they recommended on primary aluminum was in the $0.07, $0.08 of pound, less than $0.10 of pounds rage, which is significant, but not debilitating in terms of our ability to compete offshore. So it will have an impact on our international – our foreign sales could have been neutral for sure, could have a benefit for our domestic sales, which is more than 80% of our sales. And again, I'll close with all of this is hypothetical until we find out what they're really going to do.

Right, okay. Thank you for that. And then you also made some comments on M&A. We're leverage ratio, would you guys need comfortable or you going to? And then I guess how does it relate to 2025 strategic plan at this point?

The leverage is consistent with Dan and I have said all along, I mean, it depends we like two times as a long-term target. We certainly would go through three, it maybe go to four times and net over the – for the right kind of strategic acquisition if we had a clear path to get it back down to our target leverage within a reasonable period of time. In terms of our 2025 outlook, we review this with the board every year. And every year we conclude, we have concluded as we refresh all the information in our outlook for our markets and our business that we've got a good sold core business and we’re confident that we can deliver strong shareholder returns through 2025 with this business model, which puts us in a position that M&A is optional. And frankly, we're not going pay the kind of multiples that people have been paying that have caused them to have distress in their companies. So we won't overpay, but if we see a strategic acquisition, where we can create value for our shareholders, then we’ll go forward and we’ll put on the leverage. But not just to grow, we’re going to grow for value creation, not for growth sake.

Okay. And I’ll just ask with one specific aerospace question. There's been some discussion of repricing 767 commercial orders. Does that aircraft have any unique way of alleviating near-term destocking, just given us more than aluminum aircraft?

It’s tiny. It will have some impact, but it's marginal.

Okay. Thank you.

Okay. Thanks, Josh. End of Q&A

Thank you. Ladies and gentlemen, I’m showing no further questions at this time. I would now like to turn the call back to Mr. Jack Hockema for any closing remarks.

Thanks everyone for joining us on the call today. We look forward to updating you again on our first quarter conference call in April. Thank you.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program. You may all disconnect and have a wonderful day.