Kaiser Aluminum Corporation (KALU) Q2 2021 Earnings Report, Transcript and Summary

Welcome to the Second Quarter 2021 Earnings Conference Call. My name is Jackie and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] I will now like to turn the call over to Melinda Ellsworth. Ms. Ellsworth, you begin.

Thank you. Good afternoon, everyone, and welcome to Kaiser Aluminum's second quarter and first half 2021 earnings conference call. If you have not seen a copy of our earnings release, please visit the Investor Relations page on our website at kaiseraluminum.com. We’ve also posted a PDF version of the slide presentation for this call. Joining me on the call today, our President and Chief Executive Officer, Keith Harvey; Executive Vice President and Chief Financial Officer, Neal West; and Vice President and Chief Accounting Officer, Jennifer Huey. Before we begin, I'd like to refer you to the first three 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, 2020 and Form 10-Q for the quarters ended March 31 and June 30, 2021. 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. Reconciliations of certain forward-looking non-GAAP financial measures to comparable GAAP measures are not provided because certain items required for such reconciliations are outside of our control and/or cannot be reasonably predicted or provided without unreasonable effort. Any reference in our discussion today to EBITDA means adjusted EBITDA, which excludes non-run-rate items for which we've 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 Keith Harvey. Keith?

Thanks, Melinda, and welcome to the second quarter 2021 Kaiser Aluminum earnings call. Turning to Slide 6. Our second quarter results reflect the first time we have included the financial impact of our Warrick Rolling Mill acquisition, including revenue, operating expenses and costs associated with integrating the business into Kaiser. We delivered strong value-added revenue of $318 million and adjusted EBITDA of $59 million for the quarter. We continue to see improving conditions in all of our end markets with automotive sales being the exception for the quarter as strong demand was offset by ongoing shortages of computer chips, that once again impacted North American light vehicle production. In today's inflationary environment, our operations and commercial teams have been working diligently to identify and pass-through rising costs associated with freight, labor and materials. In addition, while our workforce has risen to the challenge of meeting increasing demand, we are facing the same challenges as other employers, including the ability to efficiently attract and add labor to meet that demand, which has led to slightly higher labor costs. Moving on to the current market conditions, aerospace and high-strength sales continued to improve sequentially from the second half of last year. As barriers for normalized air travel continue to fall, the full recovery of this business back to the record 2019 levels remains on track. We expect better results in the third quarter and fourth quarter compared to the prior year quarters with steady gains continuing through the 2023, 2024 time period. Demand for our general engineering products continues to be robust. Shipments in this category rose sequentially from the second half of 2020 and have offset slower commercial aerospace plate sales and automotive extruded production shortfalls. We see continued strong demand from our service center customers and the customers they serve through the balance of 2021 and into 2022. As I stated previously, we experienced slightly lower sales in second quarter as compared to the first quarter for automotive extrusion applications due mainly to ship shortages affecting the automotive industry all while demand remained robust. We feel this supply chain challenge will begin to abate in third quarter and sales should stabilize and recover, but the situation continues to be dynamic. Our projection of year-over-year value-added revenue increase of 35% to 45% for automotive sales in 2021 remains intact at this time. Our packaging business remains robust with multiple discussions underway with customers for future supply. We are evaluating volumes, price and mix as we discuss our options at Warrick. These discussions regarding strategic long-term supply position support additional profitable growth in the food and beverage packaging markets in future years. I will have additional color commentary on our outlook for packaging in my later remarks. The full integration of Warrick into Kaiser continues to go well, and our teams are working diligently to completely transfer support services from Alcoa to Kaiser by the end of the year. The seamless integration of the business combined with strong financial results to-date further reinforces the Warrick transaction was the right long-term decision for Kaiser and its shareholders. Neal will now provide more detail on our second quarter results. And afterwards, I will provide an outlook of our major markets and actions we intend to take to maximize our short- and long-term opportunities. Neal?

Thanks, Keith, and good morning, everyone. Turning to Slide 8. Value-added revenue of $490 million for the first half of 2021 increased to $184 million for 60% compared to the second half 2020, primarily reflecting the $132 million of value-added revenue contributed from our first full quarter of the Warrick acquisition in addition to the continuing improvement in each of our other end market applications. Value-added revenue for the second quarter of 2021 of $318 million increased to $143 million or 82% compared to the prior year period, driven by the previously mentioned packaging applications and continued improvement in our general engineering and automotive applications. Turning to Slide 9. Aerospace high-strength value-added revenue for the first half 2021 of $151 million improved $14 million or 10% on a 31% increase in shipments compared to the second half 2020. As a reminder, the second half of 2020 included approximately $15 million of additional revenue related to modifications in the 2020 customer declarations under multi-year contracts. The increase in value-added revenue and shipments reflect continued strength and demand for our defense-related applications and improving demand for commercial aerospace as we continue to see the recovery in air travel. Aerospace high-strength value-added revenue of $80 million for the second quarter 2021 declined $22 million or 22% on a 15% decline in shipments when compared to the prior year period, reflecting the COVID-19 impact on our commercial aerospace demand, partially offset by the continuing strength and demand for our defense-related applications. Moving to Slide 10. Automotive value-added revenue for the first half 2021 of $53 million demonstrated continued improvement increasing $2 million or 5% on a slight increase in shipments compared to the second half 2020. The improvements are driven by the ongoing launch and ramp up of new programs with demand being temporarily impacted during the second quarter due to the continuing impact of the semiconductor shortage in the automotive industry. Compared to the prior-year quarter, automotive value-added revenue for the second quarter of 2021 was $25 million, increasing $16 million or 176% on a 148% increase in shipments reflecting the impact of COVID-19-related automotive production shutdown in the second quarter of 2020. Turning to Slide 11. General engineering value-added revenue of $149 million in the first half of 2021 increased $33 million or 28% on a 31% increase in shipments compared to the second half of 2020, reflecting continuing strong underlying semi-conductor, industrial and machine tool demand along with restocking in the supply chain. General engineering second quarter 2021 value-added revenue of $77 million increased $15 million or 25% on a 37% increase in shipments compared to the second quarter 2020, reflecting the strong service center demand, restocking the supply chain, and growth in underlying demand for semiconductor in automotive applications. Additional detail on value-added revenue and shipments by end market applications can be found in the appendix of this presentation. Moving to Slide 12. Adjusted EBITDA for the first half of 2021 was $96 million, an increase of $36 million, up 60% compared to the second half of 2020. The increase reflects the higher value-added revenue as discussed, offset by higher freight benefit and incentive costs in addition to additional overhead costs as we continue to incorporate the work operations into our systems. For the first half of 2021, our EBITDA margin was 19.6%, reflecting the items noted above in addition to the impact of the slightly lower contribution margin of packaging products under current existing agreements. Adjusted EBITDA for the second quarter 2021 improved $24 million compared to the prior year quarter, reflecting the impact of packaging and improvements in our other end markets, offset by higher manufacturing and corporate overhead costs. Second quarter 2021 EBITDA margin of 18.5% was down from 19.7% EBITDA margin in a prior year quarter reflecting increased operating costs and portfolio product mix. As previously noted by Keith, our operation and commercial teams are working diligently to identify and continue to pass-through inflationary-driven, rising freight manufacturing costs. Furthermore, we expect that incremental transitionary overhead costs will begin to moderate as we approach the end of the year and exit the transition service agreements with Alcoa related to the Warrick acquisition. Moving to Slide 13. Reported operating income for the second quarter 2021 was $11 million; adjusting for $22 million of non-run-rate charges, including $3 million of additional work integration costs related to IT and legal services, and $19 million of non-cash charges predominantly associated with one-time purchase accounting adjustments related to hedging and LIFO inventory. Adjusted operating income was $33 million, up 54% from $21 million in a prior year second quarter primarily due to the increase in EBITDA as previously discussed. In addition, operating income includes $13 million of incremental depreciation and amortization charges reflecting the impact of purchase accounting and inclusion of Warrick operations. Reported net loss for the second quarter of 2021 was approximately $22 million compared to $7 million of net loss in the prior year quarter. Adjusting for non-run rate items noted above and the $36 million pretax impact associated with the refinancing of our $350 million 6.5% senior note, adjusted net income for the second quarter 2021 was $16 million compared to adjusted net income of $6 million in the prior year quarter. For the second quarter of 2021, we recorded a tax benefit of approximately $16 million at an effective tax rate of 41% driven by discrete tax items. Long-term, we continue to believe our effective tax rate will be in the mid-20% range under the current tax regulations. We anticipate that our cash tax rate will remain in the low single digits until we consume our federal NOLs of $94.6 million as of the year end 2020. As reported, earnings per diluted share were a loss of $1.42 in the second quarter 2021 compared to a loss of $0.41 in the prior year quarter. Adjusting for the non-run rate items, including the $1.73 after tax per share impact related to the senior note refinancing, adjusted earnings per diluted share was $1 for the second quarter of 2021 compared to adjusted earnings per diluted share of $0.36 for the second quarter of 2020. We continue to manage our business liquidity to support ongoing growth and to maintain financial strength and flexibility. During the second quarter of 2021, we proactively refinanced our $350 million 6.5% unsecured notes due in 2025 with the new issuance of $550 million, 4.5% unsecured notes due in 2031. The new financing serve with a significantly reduced interest rate, extend the maturity and increased liquidity, providing net proceeds of $160 million. As of June 30, cash were approximately $283 million and more than $367 million of borrowing availability on our revolving credit facility provided total liquidity of approximately $650 million. There were no borrowings underneath the revolving credit facility during the quarter and the facility remains undrawn. With the addition of Warrick, we have further revised our anticipated capital spending for the full year 2021 to be $80 million to $90 million including growth initiatives to be discussed by Keith in the business outlook. As we work through the integration of Warrick acquisition, we continue to manage several back-office support operations under transition service agreements with Alcoa through remainder of the year. Higher overhead costs associated with the TFAs, while also ramping up our staffing and other fees to be prepared for the hand-off will continue to affect us through year end. In addition to some higher corporate overhead costs as previously discussed, we anticipate an additional $3 million to $4 million of non-run rate costs related to the IT integration and project management support to also occur through the end of the year. And now I'll turn the call back over to Keith to discuss our 2021 and beyond business outlook. Keith?

Thanks Neal. So let's turn to Slide 15. So we're now seeing strong recovery from the pandemic in all the key markets we serve. Aerospace is beginning to build momentum as our shipments and future bookings have started to increase as commercial air travel begins to recover. As we have stated since the onset of the pandemic, we expect the aerospace market to recover to record 2019 levels by 2023 or 2024 and then resume its pre-pandemic 3% to 4% compound annual growth rate. Our anticipated timing for this recovery aligns with that of our major customers. And we expect the recovery to be the catalyst for restarting our previously announced Phase VII expansion at our Trentwood rolling mill to support the expected growth of heat treat plate for our aerospace and general engineering customers. Automotive growth is expected to remain strong with a greater than 5% compound annual growth rate that continues to be driven by light-weighting initiatives that we expect to increase. As OEMs continue to shift from internal combustion engines to more electrical vehicles, we expect these conversions to drive additional demand for extrusion, as EVs are expected to have an even higher content of aluminum extrusions. Our general engineering business continues to reflect the strongest activity we have seen in years, led by the restocking at our service center customers, along with stronger end customer demand as the markets recover from the pandemic. Demand is strong across our entire portfolio of flat rolled, and hard and soft alloy extruded products. As we’ve previously stated, we believe we are seeing a significant structural re-shoring of supply lines in North America with OEM's rethinking supply strategies that have a larger portion of their material needs sourced domestically. As a U.S.-based manufacturer, we believe re-shoring offer significant upside for Kaiser, and we expect to continue to invest in capacity throughout the portfolio to meet the increasing demands of our service center and OEM customers. Our re-entry into packaging has exceeded our expectations as demand for food and beverage packaging continues to shift to aluminum in response to growing consumer demand. In addition demand for North American aluminum packaging, which is strongly preferred in the marketplace is expected to outweigh supply for the foreseeable future. Our customers are making substantial investments in new capacity and seeking to collaborate strategically with domestic suppliers like Kaiser, who are willing to make the investments needed to meet the growing demand. We've continued to review our market position and strategic options for our Warrick Rolling Mill and see significant opportunities to create value and grow through additional investments, improved efficiencies and synergies to support customer demand. We have stated all along that our portfolio of businesses focused on aerospace, automotive and general engineering provided a strong platform for investment and continued growth. We also believe strongly that the acquisition of our Warrick Rolling Mill with its strong position in the aluminum packaging markets would be transformative adding another major growth leg in less cyclical markets with significant upside potential. As we consider the impact of the Warrick acquisition, the anticipated aerospace recovery in the 2023-2024 time period. The growing strength in our other businesses and our strong balance sheet position, we see significant opportunities for continued growth and investments in our businesses over the next several years. Turning to Slide 16, we plan to meet the rapidly increasing needs of our packaging customers with a series of strategic investments, backed by strong long-term contracts, reflecting significant margin improvement facilitated by the current market environment. We also anticipate improved efficiencies and expected synergies as we continue to integrate Warrick. To that end, our initial investment will be a new roll coat line at our Warrick facility to provide additional coated capacity for food and beverage can applications. We expect this to be an approximately $150 million investment and the equipment to be qualified and operational by early 2024. This investment will be supported by long-term agreements with improved pricing and margins for our coated products. Turning to aerospace, as you may recall, in 2019 we announced our plans to launch our next aerospace expansion project, Phase VII at our Trentwood facility. A planned five-year $375 million initiative expected to increase our Trentwood rolling mill’s plate capacity by approximately 25% and provide improvements in quality and efficiencies. While Phase VII was placed on hold when we entered the pandemic, the project remained on the shelf and ready to launch when supported by improving demand. During 2020, we continued refining the project and have been able to reduce the planned spending from $375 million to approximately $225, while still achieving the previously planned benefits from the investment. We achieved this by re-engineering our existing finishing capacity during the expected aerospace plate recovery period. We expect to restart the planned Phase VII investment when warranted to meet the needs of our flat rolled aerospace and general engineering customers. And we expect the Phase VII investment to facilitate our ability to continue to meet their needs well into the remainder of this decade. Finally, our positions in automotive and general engineering are expected to continue to improve as we support the planned growth in those markets with smaller targeted investments. All told, we expect to invest approximately $400 million on these growth initiatives over the next several years, along with an expected $60 million per year in sustaining CapEx spending. Funding for these investments will be provided by our operations and supported by our strong balance sheet with the continued goal of meeting our net debt-to-adjusted EBITDA target of two times within the next two to three years. Turning now to Slide 17, with the expected recovery rates of our major markets and the planned investments we have outlined, the Kaiser portfolio is well positioned to deliver long-term value added revenue, approaching $2 billion with expected adjusted EBITDA margins in the mid-to-high 20%. Turning to Slide 19 and a summary of today's remarks, our key markets continue to recover and we see significant growth opportunities in our portfolio. We have identified approximately $400 million of those investment initiatives to support that growth in our markets. The consolidated business, along with the planned investments will be positioned to deliver approximately $2 billion of value added revenue within an expected adjusted EBITDA margin in the mid-to-high 20%. We remain committed to our goals for maximizing the earnings potential of those businesses, where we are well-positioned with our blue chip customer base to adhere to our capital priorities for organic then inorganic and commitment to our dividend, and to return excess cash to our shareholders. Our outlook for the remainder of the year remains unchanged from our first quarter outlook. And then finally, a disciplined approach to debt management, with net debt-to-adjusted EBITDA targets at two times or better, and a strong balance sheet with sufficient liquidity to service the growth of the business and to weather any significant downturn in our markets. With that, I will now open the call to any questions. And I'll turn it back to Jackie.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Curt Woodworth with Credit Suisse. Please go ahead.

Yes. Thank you. Good afternoon.

Hi, Curt.

My first question is with respect to Warrick, I wondered if you could provide some more detail on the expansion in terms of how much incremental capacity you'll get from the new mill. And with respect to sourcing substrate, can you talk to that too? Is the expectation that you'll take in more metal from the Warrick smelter or are you looking at more recycled material? And then how do you see kind of the end product mix of that facility going forward?

Sure. Well, the volume focus here, this is more of a mixed focus for that facility. A good portion of that mill is already participating in coated products. We have a very strong position with many of our customers there. And as we continue to see the growth ramp overall in food and beverage, the coated side continues to be an area that we see significant opportunity. During the due diligence process, we highlighted this opportunity and we're determined as part of the acquisition strategy to try to initiate this growth going forward. So this provides us a significant amount, more of mix for coated, which for us is a higher margin opportunity. As far as substrate goes, Curt, we're obligated to take a portion of our business from the Alcoa smelter for a period of time and we will do so. But the long-term expectations are is that we will continue to bring in more scrap material, more UBCs to manage that. The end customers are requiring more sustainability; the greenhouse gas, the footprint, carbon footprint. So the message is very clear. We will be moving over the years towards a more and more scrap-based type substrate. And other than that, we do purchase some and you get on the outside. And we typically manage that with the other two items in understanding. And then the third part, Curt, can you tell me – remind me what the third part of your question was?

Well, just how the product mix…

Around the product mix?

Yes.

Yes. Currently, a significant portion over half of our business really focuses on coated materials out of the facility. And we're large participants with not only beverage, but also food cans. And all of the customers that we continue to talk with, continue to see growing demand, the need and the desire for more domestic material. And that not only covers the body stock, but it also covers the coated in stock and the other items, especially as they relate to the food products. So we're seeing that demand and we're probably, I think, best suited to take advantage of that opportunity. And so we're moving in sync with our major customers to try to shore that up and provide more of that domestic product in those applications. So we see that mix becoming a larger share of our total operating mix out of the Warrick facility.

Okay, great. That's helpful. And then with respect to the current, I guess, operating footprint, you've got some obviously artificial issues with auto with the chip shortage and we know aero is basically at near bottom. I was wondering, can you talk to your current utilization rates across your system? And how successful have you been to be able to redeploy, some say, that spare aerospace capacity into other markets like GE, other types of plates? Thank you.

Yes. Actually, we've been very successful. And you can see that if you look in the shipments and the breakout in the various markets that we're in. You'll see that our general engineering shipments are up substantially through the period and we expect that to continue. That is the ability that comes in two areas; one is the Trentwood facility, which we ran into the situation where we couldn't meet the aerospace demand and general engineering demand in 2019. We're seeing very strong demand in the general engineering products. And so we pivoted early last year and that just continues to expand every quarter at Trentwood. So we see that continuing on into 2022. The other side that we're doing a very good job, the teams are doing an excellent job is on the automotive side. So on the automotive facilities that we participate, they also I think every one of them also have a component of their business where we supply to the general engineering to our service center customers. And so as that demand has continued to meet levels as I stated, stronger than we've seen in many years, we've just pivoted that capacity from the auto and moved those – that volume through our presses over to supply the general engineering. And we have a pretty good supply chain to be able to provide that. So that's been fairly seamless and it's been an area where it's been very profitable too. The opportunity there, as we've stated with the costs that have been ratcheting up around freight and others, we have been rapidly increasing prices and passing through those costs, and we've been able to do that through that general engineering side as well.

Okay, great. And then just one final one. I know you have the excellent position within distribution. Did you feel like the supply chain has – is there more restocking to go? Do you feel like – clearly in aero there had been some excess inventory issues at the start of the year, but do you feel like the supply chain has restocked at this point? Or what's your sense for where we stand? I know it varies among end product, but thank you.

Yes, it does. But in the past, Curt, when Jack would answer this question, we would follow the road and bar from the MSCI. We would look at – watch inventories there and sales and shipments from mills to the service centers. We haven't seen that in a couple of months, but the last time we saw that, we have – our sales had started to ramp up in the fourth quarter of last year, maybe even part of the third quarter. And as we watched in December, I know in our first quarter call, we mentioned that, look, we're seeing a significant increase in shipments and bookings, but as we watched the inventory levels, the inventory levels are not coming up at the service centers. So – and I anticipate as we know that the whole supply chain is in a restocking mode, but we're clearly seeing strong rebound from the pandemic as well. So I think you're going to see restocking continued through the balance of the year. And we think things will continue to be strong in 2022, but we'll keep our feelers out. But for now, I think with lead times – lead times in some of our long products are out to 20-plus weeks, and then on our flat-rolled products in that category we're out to 13 and 14 weeks. So we've got a pretty good handle on that demand going forward. And we think the balance of the year is going to be very strong and very tight.

That's great color. Thanks very much. Best of luck.

Thank you, Curt.

Thank you. Our next question comes from Josh Sullivan with Benchmark. Please go ahead.

Hey, good afternoon.

Hi, Josh.

Just on the inflationary pressures, can you detail what was labor and what was freight just in the quarter? And then on the labor side, some of these capital investments you're planning, are you designing in any more automation or ways to combat labor inflation long-term?

Yes. So you combine the cost. If you compare the first quarter where we were roughly 20%, 22% on our margins, EBITDA margins, and this quarter we came in roughly around an 18.5%. That's about the difference between mainly freight and additional planned overhead as we ramp up, and some of the inefficiencies. So that really is the difference there in that category. And then absolutely quite frankly, here are the components that are very – have to be assertive, have to be identified and have to be evaluated in any investment. One, what are the market conditions? And do we have the support to get the return on the investment? So we remained very disciplined in looking at those and when we will launch these investments. And then second, we take a look, not at just on the commercial opportunity. We’ll look at how do we improve efficiencies and/or how we lower the cost? So automation is continuing to be a major part of what we look at. AI is continuing to be evaluated in every investment we look for, and some of those opportunities apply we're able to launch the Phase VII and get more productivity out with the lower investment upfront figure. So we’ll take a look at that. And then final another component that we're evaluating with every investment and everything we're doing is the sustainment potential. You know, how does that help on our carbon footprint? How does that help move us toward our objectives of what we're trying to achieve on our environmental, social governance type focus? So every one of those questions have to be addressed with every investment and then we get a good idea of what the impact can be to the overall business.

Got it. And then just with regard to the commercial aerospace plate outlook, you might've kind of answered it with Curt's question, but how does that breakdown between service distributor demand and then directly to the aerospace OEMs? And then just related to that, you know Airbus has come out here with some longer-term guidance, giving the industry something to sink their teeth into, but can you detect your level, any discrepancies on plate pull-through between the OEMs at this point?

Well. As we've stated all along Josh, we've been talking with the OEMs at the very beginning of the onset of the pandemic. And some have announced that we're also looking and speaking with them. So we're seeing the ramp up of their needs. We already have some clear clarity into next year what their needs are going to be and then as we go forward. And we are seeing a little bit of more urgency of putting that in place and positioning for. We're looking at extensions of our major contracts, so that give us – that gives us more confidence in the volumes that are going to be required and the needs of our overall business. But one area that really stands out and I think it needs to be discussed more in, in 2019 as we saw the record levels for at the time for aerospace. And we expect to get back there as I stated in 2023 and 2024. At that time, we were turning away business for general engineering plate. And we weren't able to meet the – satisfy the demand from our customers and we intend to address that with this Phase VII in a big way. So we're preparing not just for the return for aerospace, but we're preparing to continue to supply and grow our general engineering participation specifically with the service center customers. So that's going to be our commitment and another area of quite frankly, the – making sure the investment is substantially backed up with orders. And that's our intent with the Phase VII expansion. We haven't launched that yet. We haven't had approved. We're going to be evaluating the markets. We're going to be evaluating the needs, but again we're looking at the aerospace recovery. We're looking at the growing general engineering demand for plate for domestic plate. And we'll pull that shot when it's time to do so.

Got it. And I guess taking that all together, the long-term guidance or outlook that you're putting out there, how should we think about the cadence or timeline to get to that?

Well, if you follow the – how we've outlined, and if the markets behave as we expect. We expect to be back to the 2019 levels at which time we were squeezed on capacity for Phase VII, for Phase VI at the time. And it was really the impetus for launching Phase VII. So we intend to get back there in 2023, 2024, we believe. That may be pushed up as if general engineering continues to grow and if indeed there's been a change as we suspect with the need for domestic supply. So when we take a look at that, we'll have to back up 18 to 24 months to begin to place the equipment orders and so forth, to be prepared for that demand in 2023 or 2024. So we'll be evaluating this here over the next six to 12 months and see what the timing for that will be. On the $150 million for Warrick on the roll coat line, that need is immediate. It's urgent. I wish I had it in the ground. I wish we had started this the day we started our talks. Our customers are – have been very supportive and we're aware. The reason we exited packaging in the 1990s is that, we could not sustain investments and the market was a little bit on the demand supply side, not going with us. So we're being very cognizant of that growth going forward. But as we see it, we've stated, we're sold out for 2021, 2022 through 2024, looks extremely strong. And our customers are asking for more capacity and are willing to back that up with long-term commitments. So we're going to start that. We've already started that process and hope to begin it, and we are beginning it and plans are to have it in the ground and operational early 2024. So we're – as usual, we're being very disciplined in our approach, it's backed up by demand and when that's there and we can justify the investments we're going to act accordingly.

Got it. And then just on the automotive side, you mentioned the lead times for aerospace. And what do the lead times on the automotive side look like just as that 3Q, 4Q ramp on the OEM side picks up?

It's an interesting point, Josh and I was a lot more comfortable before we came this morning, but General Motors came out this morning prior to our call and announced that, on the T1 line which is their light-truck and anticipation, they're anticipating more shutdowns for third quarter. And we're still seeing a number of new programs launched and those have been successful in growth, but this chip shortage continues to be around. We're talking with customers, we're going to watch, evaluate, but the good thing for us at this moment, if we see continued decline on the automotive, those plants can quickly go over and try to meet the general engineering need, which is strong, robust and continues to have extremely long lead times comparatively speaking. And so we'll adjust that capacity to meet the needs in general engineering.

Okay. Thank you for the time.

Thank you, Josh.

Thank you. We have no further questions at this time. I would like to turn the call over to Keith Harvey for closing remarks.

Okay. Well, thank you for your interest in Kaiser Aluminum. We appreciate your attendance here and your interest in our company. We look forward to talking with you next quarter on the third quarter outlook. So thank you and have a good day.

Thank you, ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.