Constellium SE (CSTM) 2025 Q4 法說會逐字稿

Good day, and thank you for standing by. Welcome to the Constellium fourth-quarter and full year 2025 results conference call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions)

I would now like to hand the conference over to your speaker today, Jason Hershiser, Director of Investor Relations at Constellium.

Thank you, Josh. I would like to welcome everyone to our fourth-quarter and full year 2025 earnings call. On the call today, we have our Chief Executive Officer, Ingrid Joerg, and our Chief Financial Officer, Jack Guo. After the presentation, we will have a Q&A session. A copy of the slide presentation for today's call is available on our website at constellium.com, and today's call is being recorded.

Before we begin, I'd like to encourage everyone to visit the company's website and take a look at our recent filings. Today's call may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include statements regarding the company's anticipated financial and operating performance, future events and expectations and may involve known and unknown risks and uncertainties.

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 factors presented under the heading Risk Factors in our annual report on Form 10-K. All information in this presentation is as of the date of the presentation. We undertake no obligation to update or revise any forward-looking statement as a result of new information, future events or otherwise, except as required by law.

In addition, today's presentation includes information regarding certain non-GAAP financial measures. Please see the reconciliations of non-GAAP financial measures attached in today's slide presentation, which supplement our GAAP disclosures.

And with that, I would now like to hand the call over to Ingrid.

Thank you, Jason. Good morning, good afternoon, everyone, and thank you for your interest in Constellium. Let's begin on slide number 5. I want to start with safety, our number one priority. In 2025, we achieved a recordable case rate of 1.9, an improvement compared to 2024 and much better than the industry average. While we did not meet our ambitious target of 1.5, this progress reinforces our commitment to safety and reminds us that reaching our goal will require continued strong efforts across the organization. Our safety journey is never complete, and we all need to remain committed to this critical priority every day.

Now let's turn to slide number 6 and discuss the highlights from our fourth-quarter performance. Shipments were 365,000 tons or up 11% compared to the fourth-quarter of 2024 due to higher shipments in each of our operating segments. Revenue of $2.2 billion increased 28% compared to the fourth-quarter of 2024 due to higher shipments and higher revenue per ton, including higher metal prices.

Remember, while our revenues are affected by changes in metal prices, we operate a pass-through business model, which minimizes our exposure to metal price risk. Our net income of $113 million in the quarter compares to a net loss of $47 million in the fourth-quarter last year. The main driver of the increase was higher gross profit in the quarter versus last year. Compared to the fourth-quarter last year, adjusted EBITDA increased 124% to $280 million in the fourth-quarter this year, so this includes a positive non-cash impact from metal price tag of $67 million.

If we exclude the impact of price lag, which, as you know, is the way we view the real economic performance of the business, we achieved an adjusted EBITDA of $213 million in the quarter. This is a new fourth-quarter record for us and is up 113% versus the $100 million in the fourth-quarter last year. Our free cash flow in the quarter was strong at $110 million. And during the quarter, we returned $40 million to shareholders through the repurchase of 2.4 million shares.

Now please turn to slide number 7 for our full year 2025 highlights. For the full year, shipments where 1.5 million tons were up 4% compared to 2024. Revenue of $8.4 billion increased 15% compared to 2024 due to higher shipments and higher revenue per ton, including higher metal prices. Our net income of $275 million compares to a net income of $60 million in 2024. The main driver of the increase was higher gross profit versus the prior year.

Adjusted EBITDA increased 36% to $846 million in 2025. So this includes a positive non-cash impact from metal price tag of $126 million. Again, if we exclude the impact of metal price lag, the real economic performance of the business reflects adjusted EBITDA of $720 million for the year compared to $575 million we achieved in 2024 and represents our second best year ever.

Moving now to free cash flow. Our free cash flow for the year was $178 million in 2025. During the year, we returned $115 million to shareholders through the repurchase of 8.9 million shares. We reduced our leverage by the end of 2025 to 2.5 times, which is at the upper end of our target range.

Constellium achieved strong results in 2025 that were ahead of our own expectations coming into the year and despite the uncertain macroeconomic and end market environment. I want to thank each of our 11,500 employees for their commitment and relentless focus on safety and serving our customers. We delivered strong execution and demonstrated our ability to control costs throughout the year in 2025, and we believe we are well positioned heading into 2026 to capitalize on market opportunities as they arise.

With that, I will now hand the call over to Jack for further details on the financial performance. Jack?

Thank you, Ingrid, and thank you, everyone, for joining the call today. Please turn now to slide 9, and let's discuss our A&T segment performance. Adjusted EBITDA of $83 million increased 43% compared to the fourth-quarter last year. Volume was a tailwind of $31 million due to higher TID shipments. TID shipments were up 41% versus last year. First, as we continue to see increased demand from onshoring in the US; and secondly, we also benefited from higher shipment in Valais following a recovery from the flood last year.

Aerospace shipments were stable in the quarter versus last year as commercial OEMs continue to work through excess aluminium inventory in the supply chain. Demand in space and military aircraft remain generally healthy. Price and mix was a headwind of $28 million due to unfavourable mix in the quarter, partially offset by improved contractual and spot pricing in aerospace and TID.

Costs were a tailwind of $18 million, primarily as a result of lower operating costs. FX and other was also a tailwind of $4 million in the quarter due to the weaker US dollar. For the full year 2025, A&T generated adjusted EBITDA of $339 million, an increase of 16% compared to 2024. The drivers of the full year performance were similar to those in the fourth-quarter, except volume was a headwind of $1 million for the full year.

Now I'll turn to slide 10, and let's focus on our PARP segment performance. Adjusted EBITDA of $136 million increased 143% compared to the fourth-quarter last year and is a new quarterly record for PARP. Volume was a tailwind of $19 million in the quarter. Packaging shipments increased 15% in the quarter versus last year as demand remained healthy in both North America and Europe. In North America, we also benefited at Muscle Shoals from continued improvement of operational performance in the quarter.

Automotive shipments were relatively stable in the quarter overall though we did benefit in both regions from the current supply shortages in North America of aluminium automotive body sheet. Price and mix was a tailwind of $15 million, mainly as a result of improved pricing and favourable mix in the quarter. Costs were a tailwind of $40 million primarily as a result of favourable metal costs given improved scrap spreads and higher metal pricing environment in North America and increased consumption of scrap given the Muscle Shoals improvement, which is partially offset by higher operating costs.

FX and other was a tailwind of $6 million in the quarter. For the full year 2025, PARP generated adjusted EBITDA of $353 million, an increase of 46% compared to 2024. The drivers of the full year performance were similar to those in the fourth-quarter though we benefited more in the fourth-quarter from favourable metal costs compared to the full year.

Now turn to slide 11, and let's focus on the AS&I segment. Adjusted EBITDA of $5 million increased by $1 million compared to the fourth-quarter of last year. Volume was a $4 million tailwind as a result of higher shipments in industry touted products, partially offset by lower shipments in automotive. Industry shipments were up 33% in the quarter versus last year as we had higher shipments in Valais following recovery from the flood last year.

The industrial markets in Europe appear to have bottomed, although they remain at depressed levels. Automotive shipments were down 10% in the quarter with weakness in both North America and Europe. Even though the broad automotive market in North America are relatively stable, our automotive structures business was negatively affected by the current supply shortages of aluminium automotive body sheet and its impact on production of certain platforms in the region which automotive structures business supplied to.

Price and mix was a $6 million headwind in the quarter. Costs were a tailwind of $1 million primarily due to lower operating costs, partially offset by the impact of tariffs. FX and other was a tailwind of $2 million in the quarter. For the full year 2025, AS&I generated adjusted EBITDA of $72 million, a decrease of 3% compared to 2024. The drivers of the full year performance were similar to those in the fourth-quarter, except the volume was stable for the full year.

And in the third-quarter, we received net customer compensation for the under-performance of an automotive program. It is not on the slide here, but our holdings and corporate expense for the full year 2025 was $44 million, up $11 million compared to the prior year. The increase is primarily due to higher labor costs and costs associated with corporate transformation projects. We currently expect holdings and corporate expense to run at approximately $50 million in 2026.

Now please turn to slide 12. It is not on the slide here, but I wanted to summarize the current cost environment we're facing. As you know, we operate a passive business model, so we're not materially exposed to changes in the market price of primary aluminum, our largest cost input. Other metal costs. following the US tariff announcements in 2025, market aluminum prices in the US, which includes the LME aluminum price plus the Midwest premium, have risen sharply to historical levels.

Spa scrap spreads for aluminum, mainly used beverage cancer UBCs have also improved from historically tight levels experienced in the second half of 2024 and into 2025. Both of these dynamics unfolded as we moved through the year in 2025. Given that a portion of our scrap purchases were negotiated previously, we did not benefit much from this dynamic in 2025 until the fourth-quarter, and the favourable impact was augmented through strong performance at Muscle Shoals in the quarter. As we look at 2026, we expect to benefit from these trends, especially in the first half.

Moving on to inflation. Inflationary pressures continue today across operating cost categories, including labor, energy, maintenance, and supplies, albeit at more normal levels. Regarding tariffs, we have made some progress on past dues and other actions to mitigate a portion of our gross tariff exposure, and we believe at this stage, our direct tariff exposure remains manageable and the current tariff and trade policies are net positive for us.

In terms of the overall cost management, we have demonstrated strong cost performance in the past and we're confident in our ability to maintain a right-sized cost structure in any environment. On that front, we're pleased today to announce our next group-wide excellence program, which we're calling Vision 2028. This program will target both operational efficiencies and cost reduction across our businesses and is one of the building blocks in our road map to our 2028 targets. We look forward to updating you on our progress going forward.

Now let's turn to slide 13 and discuss our free cash flow. We generated $178 million of free cash flow in 2025, well ahead of a very challenged 2024. The increase in free cash flow in 2025 was primarily a result of higher segment adjusted EBITDA and lower capital expenditures, partially offset by higher cash interest.

Looking at 2026, we expect to generate free cash flow in excess of $200 million for the full year. We expect CapEx to be approximately $115 million, which includes approximately $100 million of return-seeking CapEx, primarily related to key aerospace and recycling and casting projects we announced previously at SAR, Muscle Shoals and Ravenswood. We expect cash interest of approximately $125 million and cash taxes of approximately $70 million, and we expect working capital and other to be a use of cash for the full year.

As Ingrid mentioned previously, we continued our share buyback activities in the quarter. During the quarter, we repurchased 2.4 million shares for $40 million bringing our 2025 total to 8.9 million shares for $115 million. We have approximately $106 million remaining on our existing share repurchase program, which we intend to complete by using our free cash flow generated this year.

Now let's turn to slide 14 and discuss our balance sheet and liquidity position. At the end of the fourth-quarter, our net debt of $1.8 billion was up approximately $50 million compared to the end of 2024 with the largest driver being the translation impact from the weaker US dollar at the end of the year. We reduced our leverage to 2.5 times at the end of 2025, which is at the upper end of our target range. We expect leverage to trend lower in 2026 and to maintain our target leverage range of 1.5 to 2.5 times over time.

As you can see in our debt summary, we have no bond maturities until 2028. And as of the end of 2025, we had no outstanding borrowings under the Penn US ABL facility. Our liquidity increased by around $140 million from the end of 2024 and remains very strong at $866 million as of the end of 2025. With that, I'll now hand the call over to Ingrid.

Thank you, Jack. Let's turn to Slide 16 and discuss our current end market outlook. The majority of our portfolio today is serving end markets benefiting from durable and attractive secular growth trends in which aluminum light an infinitely recyclable material plays a critical role.

Turning first to the aerospace market. Commercial aircraft backlogs are at record levels today and continue to grow. Major aerospace OEMs remain focused on increasing build rates for both narrow-body and wide-body aircraft as evidenced by higher plane deliveries year-over-year, and rising delivery ambitions in the near term. Although supply chain challenges have continued to slow deliveries below what OEMs were expecting for several years in a row now. Demand is steady for the most part, and aluminum destocking in the supply chain appears to be easing.

Demand for high value-add products, which is one of our core focus areas remain strong. We remain confident that the long-term fundamentals driving commercial aerospace demand remain intact, including growing passenger traffic and greater demand for new, more fuel-efficient aircraft. In addition, demand remains stable in the business and regional jet market, whereas demand for space and military aircraft is strengthening.

We believe we are a leading provider of proprietary aluminum solutions for those customers in the space and military aviation markets today. As you know, we are investing in additional capacities and capabilities, such as our third Airware casthouse in Issoire, which we expect to start up by the end of this year to further strengthen our position in the future.

Looking across our entire commercial and military aviation and space businesses, we believe our product portfolio is unmatched in the industry, and we have industry-leading R&D capabilities for aluminum aerospace solutions. Given the visibility over the next several years, we are raising our adjusted EBITDA per ton target for our A&T business to $1,300, which is up from $1,100 that we provided last year.

Turning now to packaging. Demand remains healthy in both North America and Europe. The long-term outlook for packaging continues to be favorable as evidenced by the growing consumer preference for the sustainable aluminum beverage can. Capacity growth plans from the can makers in both regions and the greenfield investments ongoing here in the US We continue to see aluminum gain share against other substrates in the beverage market and the majority of new beverage products are launched in aluminum cans today due to its sustainable attributes.

Aluminum cans are highly recyclable, and we are well positioned to capitalize on the benefits from recycling packaging materials at our facilities in Muscle Shoals and Packaging markets are relatively stable and recession resilient as we have seen many times in the past. Longer term, we continue to expect packaging markets to grow low to mid-single digits in both North America and Europe, providing a strong base load for our operations in both regions.

Now let's turn to automotive, which continues to be a bit of a different story in North America versus Europe. In North America, demand is relatively stable, so the tariff environment is creating some uncertainties. Last year, one of our competitors' US-based facilities was impacted by fire, a very unfortunate event and which has created an interruption in the aluminum rolled product supply chain in North America.

The entire industry continues to mobilize to ensure we limit the impact on our customers. In the fourth-quarter, we started to benefit on the rolled product side as we were able to help our customers during this outage.

On the automotive structure side, we were negatively impacted as some OEMs were forced to reduce production on certain platforms impacted by the disruption on the Rolled Products side. The overall impact in 2025 was a net positive on our results, which we expect to continue into the first half of 2026.

Automotive demand in Europe remains weak, particularly in the premium vehicle segment, where we have greater exposure. European markets are seeing increased Chinese competition and have lowered their battery electric vehicle ambitions.

Automotive production in Europe is also feeling the impact of the current Section 232 auto tariffs given the number of vehicles Europe exports to the US. Longer term, we believe electric and hybrid vehicles will continue to grow, but at a lower rate than previously expected. Secular trends such as lightweighting, fuel efficiency and safety will continue to drive the demand for aluminum products.

As a result, we remain positive on this market over the longer term in both regions despite the weakness we are seeing today. As you can see on the page, these three core end markets represent over 80% of our last 12 months' revenue.

Turning lastly to other specialties. These markets are typically dependent upon the health of the industrial economies in each region including drivers like the interest rate environment, industrial production levels, and consumer spending patterns. Industrial market conditions in North America and Europe became more stable in the second half of 2025 and we believe the markets, particularly in Europe, have bottomed after three years of market downturn. Nevertheless, we expect the specialties markets in Europe to remain relatively weak in the near term.

We do believe TID markets in North America provide us with some opportunities today given the current tariffs make imports less competitive compared to domestic production. We also believe there are some opportunities in land-based defense and semiconductor markets given current market dynamics. In most industrial markets, we are focused on niche high value-added applications.

To conclude on the end markets, we like the fundamentals in each of the markets we serve, and we strongly believe that the diversification of our end markets is an asset for the company in any environment.

Turning lastly now to slide 17, we detail our key messages and financial guidance. Our team delivered strong execution and results in 2025 that were well ahead of our expectations coming into the year. Excluding metal price lag, our adjusted EBITDA in 2025 was our second best year ever. We returned $115 million to shareholders in the year with the repurchase of 8.9 million shares, and we reduced our leverage to 2.5 times by year-end. We remain focused on strong cost control, free cash flow generation and commercial and capital discipline.

Based on our current outlook, for 2026, we are targeting adjusted EBITDA, excluding the noncash impact of metal price lag in the range of $780 million to $820 million and free cash flow in excess of $200 million. Our guidance assumes the recent demand trends in our end markets that I described earlier, will continue into at least the early part of 2026 and the overall macroeconomic environment to remain relatively stable. Looking into the future, we also want to reiterate our targets of adjusted EBITDA, excluding the noncash impact of metal price tag of $900 million and free cash flow of $300 million by 2028.

To conclude, we are extremely well positioned for the long-term success and remain focused on executing our strategy and shareholder value creation.

With that, operator, we will now open the Q&A session.

(Operator Instructions)

Katja Jancic, BMO Capital Markets.

Maybe starting on the '26 guide. Can you let us know how much of a benefit for scrap spreads is embedded in this guide?

Katja, so I think it's -- thank you for the question. Regarding the scrap benefits for 2026, and here, I'm going to go on for a little bit. Obviously, it's -- we believe it's a tailwind for us in 2026. Our expectation is, given our scrap consumption needs are fully contracted in the first-quarter, we should see similar type of benefits as we've seen in the fourth-quarter of 2025. And if you were to kind of look at the bridge for Q4 2025 for PARP business unit, you'll see that and we called this out, right?

The metal benefits in system, so it includes the European plants as well as Muscle Shoals more than offset a little bit of a higher operating cost, if you will. So the net impact is $40 million, which gives you an idea on the amount of the benefits we had in the fourth-quarter of 2025, and we believe that should continue to carry into at least the first-quarter of 2026.

Now obviously, there's quite a bit of interest on this topic. So I think it is -- we think it's important to have some context. Number one, as we mentioned and discussed previously, the recycling economics is quite complex. There are really a lot of elements at work Here, we're talking about the market aluminum price levels. We're talking about scrap spreads.

We're talking about scrap consumption levels, productivity, mount loss type of scrap. We procure and it's not just UBCs. We'll also consume other types of scrap, even within UBCs, you have different grades. So it gets really, really complicated. And if you just -- if you just take three of the many elements there, it becomes a three-dimensional matrix.

So it's very complicated as they can work in sync or they can work against one another. I think another important point to understand is recycling economics have averaged out over time. And that was the case when markets were much more stable and call it the pre-2024 time periods where we have mentioned previously that the annual swings could vary between sort of the $20 million to $30 million range, but they have averaged out over time.

And that is also the case in times which are more volatile like between 2024 today. And if you just rewind a little bit, in '24, we saw sharp contracting scrap spreads, and we had challenges at Muscle Shoals. So we experienced actually $15 million to $20 million worth of quarterly headwind, if you will.

And then you kind of multiply that by four, you get the full year headwind. So it is quite substantial. And then we saw a similar type of headwind in the first half of 2025, which was more pronounced in the first-quarter, to a lesser extent in the second-quarter as spot spreads tightened, but Muscle Shoals was doing better. And the Midwest saw a sharp increase due to the tariffs. But overall, if you look at '24 to the first half of 2025, that was an extremely challenging 18 months for us from a metal profit perspective.

Now Q3 2025 was stable. And then in the fourth-quarter, as I mentioned, we benefited from a favorable environment and quite strong performance at Muscle Shoals, which have allowed us to recoup the losses we had in the first half of 2025 plus a bit more. So now looking at 2026, I've already covered the first-quarter and looking at the future quarters, we do have some open volumes -- and we're working very hard to lock in those additional open volumes beyond the first-quarter.

But the incremental benefits based on the current expectation is that they should gradually taper off as we move through the year. But overall, we should -- our expectations is that we should be able to recoup the losses we had from 2024.

So that's a long answer, but it gives you a lot of kind of color around the scrap topic. And I think the takeaway is, one, it's a very complicated topic. Number two, it does average out over time. And number three, recycling, it requires a lot of investments, which we have made. It requires a lot of know-how.

We've been operating it for decades. It is one of the cylinders being our engine, as we mentioned previously. And when the market conditions are more favorable like it is today, you can count us to make the best out of the opportunity.

Okay. And I understand that it's complicated. But let's say, if these scraps stay at the current level. And then looking more to your 28 target of $900 million. it seems that, that target might be conservative. Can you just remind us how we get there? Or what are some of the moving parts there?

Katja, thank you for this follow-up question. I'll let Jack come in later. But maybe with respect to 2028, I think when we talk the first time a year ago about our bridge, we said we were going to take more conservative assumptions on the metal side. So what you're seeing today is that we had due to metal benefits versus our 2028 target. But obviously, this is a very dynamic end market environment and things can change very, very quickly.

So Midwest premium can change very quickly and the percentages of spreads can change very quickly, which is why we have taken a conservative assumption in the first place. We don't know if the current situation that we experienced in 2026 are going to last and for how long they're going to last, which is why we have prefer to remain at a more prudent stance and assumptions in our 2028 target.

Bill Peterson, JPMorgan.

Maybe outside of the scrap spread. I'm trying to get a sense for some other factors within the 2026 guidance. For example, what is your latest thoughts on aerospace recovery? How much can be attributed to Vision 2028? Any sort of assumptions related to one of the peers in the space with their rolling mill ramping for the automotive space? Trying to get a sense for some other puts and takes within the full year guidance.

Thank you very much for the question, Bill. I'll start and let Jack completed. Let me start on the market side maybe. I think we believe that packaging is going to remain a good driver of growth for us going into this year. We see those regions US and Europe with solid performance. And we have been having quite a good turnaround in our Muscle Shoals operation, and so we have been growing on the packaging side, and we expect to continue to grow.

On the automotive side, I think we have a very mixed picture between the US and Europe. The US seems to be rather stable. But remember, we do -- we only have one continuous annealing line in the US, so our capacity on the rolled product side is limited to this one line. We have seen nice benefits in Q4 from this unfortunate event that happened in the US supply chain. And we've also had benefits in Europe which we expect to last until the first half of 2026.

As you know, the European automotive market has remained weak, and we have not seen any change. It seems that the market has bottomed out, but it's very hard to predict at this point in time. On the aerospace side, we see the business is steady. We see quite a strong -- good and strong mix on the aerospace products today in 2026. We have a little bit more visibility today than we had during our last call on '26 and maybe also 2027.

We feel that military chats and space is going to continue to grow and be positive for us. Just as a reminder, we are also going to get our new Airware cast house that will ramp up towards the end of this year. So most of the benefit you should expect coming in -- starting to come in 2027 and not this year, but we are fully on track with the expansion of our Airware capacities and capabilities.

I think on the more negative side is maybe that industrial markets and specialty markets in Europe remain weak. We also feel they have bottomed out, but we do not see a recovery coming in Europe as of yet. So I think there's a good mixture of positives and also some uncertainties in the market that we see for 2026.

On the recycling side, we continue to expand our recycling with the investments we've made in the past and the strong operating performance that we also had in Q4. So it was not just because of scrap spreads, but also strong operating performance, and we expect that to continue in 2026. As Jack already explained, the second half our scrap spreads may be less favorable. So this is something that we will update as we go along.

Important also to note that inflationary pressures are continuing, that's why we are very focused on cost control and controlling what we can control in this environment, market environment that we are experiencing. And with our Vision 2028 program, we want to underpin our road map to 2028 in terms of operating efficiencies, which is something that we need to focus on every year.

Okay. Great for that -- Maybe it's a little bit early days, but there's been some news here about some potential tariff relief on downstream derivative products. Trying to get a sense of maybe if there's any overlap with your own product suite that you sell into the US. What are you hearing on the ground? And I guess specifically, is there any risk if there's relief on derivative products that could have some impact on your business? Any sort of thoughts would be helpful.

I think the situation remains very fluid as it comes to tariffs. So with the information we are having today, we do not see any impact on us. And we continue to believe that tariffs are a net positive for us, given that we will have stronger demand within the North American market.

Mike McNulty, Deutsche Bank.

Sorry, this is Corinne. Can you hear me?

Yes, Corinne.

So maybe a few questions. And first of all, congratulations. I mean, this is an amazing quarter and a pretty good outlook, what you're giving us here. Can you talk maybe about the cadence that we can expect in terms of EBITDA and free cash flow?

And then the second question, Ingrid, if you can go back on the Vision 2028. I think we know that before you going to focus quite a lot on cost control. But I'm interested to hear more about the operational efficiencies. And especially in terms of debottlenecking, where are the opportunities that you're seeing in which market?

Thank you for the question. So I'll start, Corinne, and appreciate the comments. I'll start on the cadence question, and then Ingrid outbound on the Vision '28. So in terms of '26 cadence for EBITDA, I think as you know, Q1 and first half. Typically, there's seasonality in our business.

So from a seasonality perspective, they tend to be stronger than the second half, that's normal course. Now for '26, I've mentioned about the incremental benefits we expect to see in the first-quarter from favorable recycling economics, right, recycling profits. So that should come in the first-quarter. And on top of it, we expect to see a full quarter of benefits related to the automotive supply due to the unfortunate fire that happened at one of our competitors' plans last year. So we should see a full quarter benefit.

So Q1 is set up nicely and it should be stronger than to Q4 of 2025 based on the current expectation. And then from a free cash flow perspective, typically, we build working capital in the first-quarter and then into the first half of the year, and then we would release working capital. So that gives you an idea on the cadence for free cash flow.

Thanks, Corinne. So in terms of Vision 2028, this is a program that is really going to support our 2028 target. We have net productivity assumed in our bridge, and this program is there to support achieving those numbers. So in terms of major pillars, we're certainly targeting asset reliability. You see when Muscle Shoals is running well, that it's a very important driver of profitability for us.

So asset reliability remains an opportunity across our system, which will support through maximization and goes along with the portfolio optimization of the products that we make today. Given that some markets are rather weak and others have continued growth ahead of us, we want to better optimize how we are using our assets, and this project is going to help us work more cross qualification so that we optimize our overall footprint and not just optimize one site.

So asset reliability, throughput and optimized load, we have debottlenecking activities that are part of our bridge to 2028, with some limited investment that is embedded in our numbers. And then on top of it, I think we also have still opportunity to improve recycling and metal cost reduction. These are really going to be the focus areas of this program.

In terms of which markets, additional capacity should be going to. I think it's -- it's clear from what we see in the market, it's on the packaging side. So can sheet, we would continue to like to grow with the market in both regions. And then obviously, on the aerospace side, this is our highest margin product.

And with the new cast house coming in on the aero side, we would like to continue to grow this business for space military but also commercial aviation. And we have invested in some finishing capability in our sites that will allow us to support the ramp of the aerospace that is expected to come somewhere around '27.

(Operator Instructions)

Timna Tanners, Wells Fargo.

I think I'm the only person from Wells Fargo. This is Tim, and I hope you all are doing well. I wanted to dig down back to question if I could. Just if you look at the second half cadence and annualize it, that's above where the midpoint is on your guidance. So just trying to really understand what takes a step down, maybe more in the second half?

Can you help elaborate on that and please give us the assumptions on the Midwest premium and scrap spread that's baked into your guidance?

So I'll start. So -- the way to think about it is the Q4 '25, we've seen fairly substantial amount of metal benefits, as I mentioned previously, right? But then the first half is quite challenged. Then from a relative comparison perspective after we go through the year, Q1 F'25 was extremely weak. Q2 was also weak.

So the incremental benefits on the metal side, you would expect it to kind of to be more significant in the first half of 2026. I think that's one point. Then the other piece of it is we have more certainty, more visibility. Obviously, as we stand here today, February looking at Q1 and into the first half of the year and some of the markets, the visibility there is not as certain into the second half.

Okay. So does that mean that you have assumption of the Midwest premium and scrap spreads stronger in the first half than the second half. I was hoping for modification, but even if we just know that that's the way to think about it would be helpful.

I think there is more the volume consumption volume that's locked in the first-quarter relative to the future quarters. And so we have more exposure.

Got you. And then if I could, we're hearing a bit about demand destruction, a little bit of switching to steel away from aluminum and some auto and tractor trailer applications, but also opportunities for aluminum to take share from copper. So I was hoping you could comment on that. And along those same lines, it would be great to get any thoughts on the CBM impact as there were some public quote on Constellium on that topic recently.

Okay. Let me start, Timna. So I think with respect to aluminum substitution in automotive, we really do not any evidence of that and particularly nothing related to the outage that has happened in North America. You know that these design decisions, I mean, it takes a long time. To change design is very, very costly. And we develop a lot of platform-specific products. And usually, once you're on the program, it doesn't really -- or on a platform, it really doesn't happen that you get substituted.

So -- we haven't seen any impact or any talk from our customers with respect to with steel. The trailer bills are low right now and that's more related, I think, also to the general economic situation. But clearly, we haven't seen it, and we do not expect it. Because they're trying lightweight, the trend -- the better safety needs and the fuel economy, this is just going to stay. So we are not worried that on the automotive or transportation market, anything like this could happen.

And then with respect to copper, I have to say I have -- I'm not aware of this. In terms of substitution of materials, we have been able to substitute some materials in the past with our more high-performing alloys on the aerospace side, for example, but not particularly related to copper.

Now going to your question on We are even though has been adjusted a little bit, we still think it's negative for the industry in Europe. We need to really create a level playing field with people importing into Europe. We need much more than what is on the table right now. We think the is going to be reflected in the regional premium in Europe. And so it's for people who are exporting a lot from Europe, it's not going to be good higher metal prices in Europe for exports.

We produce mostly local for local, so we are not really directly impacted by this. But clearly, the design as it is today is flawed and will not prevent carbon leakage and it could potentially lead to resource reshuffling material coming into Europe based on recycled content that is very, very difficult to prove. So overall, we continue as an industry to oppose to the to its current design, and we're working with industry associations like European aluminum to work on changing it and adjusting it to the needs that the industry has.

I would now like to turn the call back over to Ingrid Joerg, CEO of Constellium for any closing remarks.

Well, thank you, everybody, for your interest in Constellium. As you see, we have delivered strong results in 2025. And today, we provided a strong outlook for 2026. We are very happy with the steps that we are making towards our 2028 targets, and we look forward to updating you on our progress in April. Thank you very much, everyone.

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.