Arconic Corporation (NYSE:ARNC) Q4 2022 Earnings Call Transcript

Arconic Corporation (NYSE:ARNC) Q4 2022 Earnings Call Transcript February 21, 2023

Operator: Good day, and welcome to the Arconic Corporation Q4 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker, Shane Rourke, Investor Relations. Please go ahead.

Shane Rourke: Thank you, Sherry. Good morning, and welcome to the Arconic Corporation Fourth Quarter 2022 Earnings Conference Call. I’m joined today by Tim Myers, Chief Executive Officer; and Erick Asmussen, Executive Vice President and Chief Financial Officer. After comments by Tim and Erick, we will have a question-and-answer session. For those of you who would like to follow along with the presentation, the slides are posted under the Investors tab on our website. I would like to remind you that today’s discussion will contain forward-looking statements relating to future events and expectations. You can find factors that may cause the company’s actual results to differ materially from the projections presented in today’s presentation and earnings press release in our most recent SEC filings.

In addition, we’ve included some non-GAAP financial measures in our discussion. Reconciliations to the most directly comparable GAAP financial measures can be found in today’s earnings press release and in the appendix in today’s presentation. With that, I’d like to turn the call over to Tim.

Timothy Myers: Thank you, Shane, and good morning, everyone. When I reflect on 2022, we accomplished a lot. In the first half of the year, we were delivering record earnings, and we were well on our way to completing our Phase 1 ramp-up. In the second half of the year, we ran into some challenges in both our North American operations and the economic conditions in Europe, but that did not stop us from continuing to improve our business. In fact, we closed the sale of our Russian operations and extracted significant cash in the midst of a very difficult situation. We completed our reentry into the North American packaging market as we ramped up to — can sheet to full production rates. We did extensive work to develop sustainability targets across key areas of our business, which I’ll share shortly.

And we took actions to address the operational issues that started in the middle of the year, which are now in our rearview mirror. Additionally, we did not waver in our commitment to return capital to shareholders, as we completed our first share repurchase program and announced a second program of $200 million. In total, we’ve bought back approximately 10% of our original shares outstanding. We remain confident in our strategy and going forward, we will continue to execute on high return, low risk under the rooftop organic investments. However, given some of the challenges we had in the second half of last year, the more uncertain economic environment and the announcements of additional capacity in our industry, we are resequencing those projects to prioritize casting and recycling projects first.

This will improve our cost profile prior to bringing any additional capacity to market. Finally, the great work we’ve done since our inception has us in position to deliver the highest free cash flow in our brief history in 2023. Now moving to Slide 5, I’ll provide some detail on how we performed across our key markets. So what should you take away here? First, with the divestiture of our Russian operations, our exposure to packaging has decreased to 11% of sales. That increases our relative exposure to higher-margin ground transportation, aerospace, building and construction and industrial segments. Next, the aerospace packaging and building construction markets continued to show strength with double-digit year-on-year growth in the fourth quarter.

Our industrial sales were adversely impacted by the operational challenges in North America and weak European market conditions we’ve previously discussed. Now let’s go down the list on the bottom right corner of the slide. In total, Arconic’s organic revenue was up 2% over last year. Ground transportation sales increased 1% organically from the fourth quarter of 2021 after growing 11% year-on-year in the third quarter. In general, automotive demand was higher and more stable in the second half than the first, as our customers’ supply chain stability continues to improve. Sales in the packaging market were up 16% organically year-on-year, as our Tennessee facility reached planned packaging production levels. As a reminder, packaging organic revenue excludes the impact of Russian sales in both the 2021 and 2022 periods.

Following a 17% organic increase in the third quarter, fourth quarter building construction sales increased 12% organically year-on-year. This is especially strong considering the weakness in our European building and construction sales, which make up about 30% of our sales in this segment. Our fourth quarter sales in the industrial market declined 33% year-on-year. The key drivers were the production challenges in key North American facilities and weak sales in Europe, down 40% year-on-year. Demand and pricing in the North American market remain attractive. Finally, fourth quarter aerospace sales were up 56% year-on-year on an organic basis. The post pandemic ramp in aerospace continues, and we expect momentum to carry through 2023. I’ll now hand it over to Erick to discuss fourth quarter results in more detail.

Erick Asmussen: Thanks, Tim. I’ll start on Slide 6 with our fourth quarter financial highlights. Revenue was $1.9 billion, up 2% organically year-over-year. We had a net loss in the fourth quarter of $273 million, and this included a $304 million loss related to the sale of our company’s Russian operations. Adjusted EBITDA in the quarter was $154 million or $145 million adjusting for the Russia sale. And this is at the center of expected range when accounting for the Russian divestiture. On a comparable basis, adjusted EBITDA was down 5% year-over-year and increased 18% sequentially. For the full-year of 2022, adjusted EBITDA, excluding Russian operations, was $635 million and was up 2% year-over-year. Free cash flow for the quarter was $118 million.

Working capital release drove $76 million of the cash flow in the quarter, and this was lower than we anticipated as lingering operation challenges drove year-end inventory to higher levels than planned. In the fourth quarter, we repurchased 2.1 million shares for $46 million under our new $200 million two-year authorization that we announced in mid-November. Now let’s turn to Slide 7, and I will discuss our quarterly financial performance in more detail. Revenue in the fourth quarter declined $196 million year-over-year, primarily due to the impact of the Russian divestiture, lower volume and mix and lower aluminum prices, partially offset by higher price realizations. Adjusted EBITDA in the quarter was $154 million or $145 million, excluding Russian operations, and down 5% year-over-year on a comparable basis.

This decline was primarily driven by cost inflation and weaker productivity, partially offset by better price realizations. Our pricing actions offset inflation in the quarter, but operational challenges in North America resulted in productivity declines year-over-year. We are seeing some relief in the European energy prices compared to prior expectations, but demand has been slow to recover in Europe as it works through the widespread economic uncertainty. Turning to Slide 8, I will review our segment performance. Starting with our Rolled Products segment. Revenue in the fourth quarter was approximately $1.5 billion, down 2% organically year-over-year. Sales volume and net productivity were negatively impacted by the operational challenges in the quarter.

Adjusted EBITDA in the quarter was $120 million, down $42 million or 26% year-over-year. As Tim mentioned, we have initiated a wide range of countermeasures and third-party reviews to mitigate future operational risk. Revenue in our Building & Construction segment in the fourth quarter was $304 million, up $43 million year-over-year and up 18% organically. Adjusted EBITDA was $49 million, up $16 million or 48% year-over-year as better price realizations continue to more than offset inflation and higher aluminum costs. Revenue in our Extrusion segment for the fourth quarter was $109 million, up 31% organically year-over-year. Adjusted EBITDA was a loss of $17 million versus a loss of $9 million last year. Pricing actions and volume growth did not offset inflation and weak productivity facing this segment.

We continue to take actions to address productivity challenges and pursue pricing actions, and we expect to see year-over-year improvement in 2023. Now I’ll turn the call back over to Tim to review our outlook by market on Slide 9.

Timothy Myers: Thanks, Erick. We continue to expect to grow organic revenue in all five of our key markets in 2023 with Aerospace leading the charge. Ground Transportation organic revenue is expected to be flat to up 5%. North American light vehicle builds are projected to be up single-digits, and heavy-duty truck and trailer production should be pretty flat year-on-year, but weakness in Europe offset some of the growth. Inside of that, our expected sales on fully electric and hybrid vehicles will grow globally to an estimated $400 million, up 50% year-on-year, following 75% growth in these applications in 2022. Industrial organic revenue is expected to be flat to up 10%. We’re watching this market closely as North American demand will be more sensitive to recession than the other markets we serve, and we are already seeing significant impacts in Europe.

We told you about the production issues that reduced our industrial output in 2022, they’ve all been resolved and they’re behind us. We are now working down the backlog that existed at year-end. Building & Construction organic revenue is expected to be flat to up 5%. We have greater exposure to Europe and building and construction than the company average, so uncertainty there is more impactful to our 2023 outlook. While the North American packaging market appears to be opening the year soft, our organic revenue is going to grow 5% to 10% year-on-year. Why? Because it’s production-driven. We’re getting a full-year of the capacity we brought online in Tennessee versus the ramp-up we had in the first half of last year. Finally, we continue to enjoy robust growth in the aerospace market, as OEMs continue their post-pandemic ramp-up and consumer air traffic returns to pre-pandemic levels.

As a result, we expect another strong year with organic growth of 25% to 30%. Let’s switch gears on Slide 10 for some updates on our ESG strategy. Today, we are announcing four new 2030 ESG targets that align with our commitment to the UN sustainable development goals. We are targeting a 30% reduction in Scopes 1, 2 and 3 greenhouse gas emission intensity by 2030 compared to a base year of 2021. We’ve done a lot of work to ensure that this target is achievable, that the results are measurable and verifiable. One of the biggest levers we had to reduce emissions is continuing to increase scraps consumption, which is a major profit driver for our business, and one of the primary value drivers for our Phase 2 and Phase 3 investments. We aim to reduce energy consumption intensity by 10% by 2030 compared to 2021 levels.

We’ve identified a series of levers we can pull to improve energy efficiency, which of course, are also good for our bottom line. When it comes to our workforce, we’re targeting 35% of salaried positions to be held by women by 2030 compared to 31% to 2021. We’re very proud of our progress on driving diversity not only on gender, but in other areas such as ethnicity, sexual orientation and age. The diversity of thought drives better outcomes for our business and this target is one of many that helps us measure our progress on that front. Last, we aim to have 80% of our high-risk suppliers meet the requirements of our supply chain management program by 2030. The program is designed to ensure that our suppliers adhere to the same values and standards of operations that we do.

Our definition of high risk are suppliers that contribute significantly to our carbon footprint or operate in high-risk countries and are relevant part of our annual buy. Collectively, they represent roughly three quarters of our annual spend. These targets are new, but the mindset is not. Our goal has always been to produce sustainable solutions for our customers and in partnership with our suppliers. Now let’s move to Slide 11, where I’ll review our outlook for the rest of the year. Looking ahead in 2023, we expect to grow adjusted EBITDA and free cash flow on a comparable basis year-on-year. We continue to expect strong double-digit growth in our North American earnings, which represents more than two-thirds of our business. However, we remain cautious on the economic challenges we face in Europe.

Revenue is expected to be in the range of $8 billion to $8.5 billion. We expect 2023 adjusted EBITDA to be in the range of $650 million to $700 million. As a reminder, our 2022 results included $71 million from our Russian operations that have been sold. Our comparable adjusted EBITDA result in 2022 is $635 million. In the first quarter, we expect adjusted EBITDA, excluding Russian operations, to be roughly flat sequentially due to weakness in Europe and China, offsetting improved operational performance in North America. Our free cash flow outlook for the year is approximately $250 million. This is a meaningful step-up year-on-year. The year-on-year improvement is primarily driven by releasing trapped working capital. As we said last call, we continue to evaluate the timing of growth projects to account for market conditions.

We have delayed the completion of our Lancaster Phase 2 project until early 2024. We previously expected to take an outage in early 2023 and have the incremental capacity online by the middle of this year. Pushing out the project to early next year allows us to rebuild the inventory necessary to support the outage and better time the launch with the annual contracting period in the industrial market. The Phase 3 and Phase 4 investments we announced in June are under review as we evaluate the market outlook and weigh the benefits of reducing costs versus adding capacity. The list of projects is still expected to generate high rates of return, but we’re being very thoughtful about the timing and sequence given the range of internal and external factors.

In the meantime, we’ve increased our outlook for sustaining capital expenditures to approximately $175 million per year. In light of the operational challenges we experienced last year, increased maintenance spend will help mitigate additional issues in the future. This higher budget allows us to address aging control and electrical systems as well as upgrade shop floor ERP systems. These investments will not only mitigate risk moving forward, they’ll also support quicker decision-making and smart manufacturing opportunities. We expect sustaining capital expenditures to be at these levels for the next few years. And we have some late-breaking news this morning to share on the Grenfell Tower fire. We learned just this morning of an update on the Behrens matter, which is the product liability case filed in the United States.

The Supreme Court announced this morning that it would not review the case. That decision means that those U.S. litigations claims are now fully and finally dismissed. You’ll also note that our financial statements include an accounting charge and insurance receivable related to developments in the alternative dispute resolution process in the United Kingdom. Due to the confidential nature of the process that resulted in the charge, we are not in a position to comment beyond what is included in the 10-K. Wrapping up, there’s a lot to be excited about in 2023. All five of our markets we serve remain solid in the face of global uncertainty. Aluminum continues to win with customers and consumers. We expect to grow adjusted EBITDA and free cash flow.

In the bottom line, we continue investing in our business and generating strong returns for our shareholders. Thank you very much for your time today. Now I’d like to open up the call for questions. Sherry?

Q&A Session

Operator: Thank you. First question will come from the line of Timna Tanners with Wolfe Research. Your line is open.

Timna Tanners: Yes, hey, good morning guys. Thanks for the detail.

Timothy Myers: Good morning.

Erick Asmussen: Good morning.

Timna Tanners: I wanted to just start out by asking if you could detail a little bit more the — you mentioned refrequencing projects, so switching up your CapEx plans potentially. One of the new entrants has said that they can get to $1,000 profit per ton in their downstream aluminum plans, certainly hasn’t been operational yet pretty far out. But what kind of delta do you think you can get if you do focus on the cost side a bit more? And how far along are you in making that decision? Just a little more color on the thinking about cost versus added capacity?

Timothy Myers: Sure, Timna. Let me start from the beginning. We were in, I think, a good position to finish out the Phase 2 project in Lancaster. With the operational challenges that we had in the second half, we really depleted our inventory positions, and we have some backlogs that we carried into this year to rebuild the inventory that we need to take the hot mill down again, it was going to take us several quarters. And it actually got to the point where it look like it could be an EBITDA-negative event for the year, because the length of the outage would offset the incremental growth that we got. So we decided that it would be more prudent to do that next year. It also allows us to align with annual contracting period with large industrial customers, because it’s sometimes hard for them to commit to ramping up in the middle of the year.

A lot of them are distributors that back those contracts up with end market customers. So that was the first, I think major decision. The second one is, if you go back to what we announced in June, we had — I think, the lion’s share of the investment was going to go in the Lancaster and it was a combination of casting, and then another incremental step-up in our hot mill capacity. As we looked at that project more closely, we had some other opportunities that we were looking at that were also casting and recycling related. And what we’ve decided to do is we have two relatively large casting projects. Instead of putting them both in Lancaster, we’re going to put one of them in Lancaster, which will be an extension to an existing building or an adjacent building.

And then we have the opportunity to expand our casting capacity in Davenport, and that’s actually floor space that we have under an existing rooftop. The reason we like those projects and we’re prioritizing them is, we actually bought over 0.5 billion pounds of slab ingot last year. So these are simply supply chain cost out projects. I haven’t really contemplated what that means in terms of dollars per metric tonne. But when you think about the significant savings we’ll have versus paying billet premiums or ingot premiums on 0.5 billion pounds or the amount of debt that we offset with the casting projects, and it allows us to consume more scrap, both of which are significant value streams for us. So we’re pulling those projects forward. And then the — which represent about half of the EBITDA uplift that we have in Phase 3.

And then the large project that would be left is the Lancaster hot mill upgrade and we’re going to push that one out to the end of our investment period. Again, we’ll have a stronger cost profile in Lancaster with the increased casting. It’s also going to be another significant outage, and we certainly want to make sure we de-risk that project, so we don’t have another experience like we had in Lancaster last year. Does that help?

Timna Tanners: Okay. Yes. No, that helps. We’ll dig in a little more. And then the next thing I’d ask about is, obviously the huge spike in the Midwest premium over the last several weeks, implications from that on your operations? And is that already in your outlook?

Timothy Myers: So that is in our outlook. In terms of disturbing earnings, we passed that through, so it’s part of our contracts in North America, in particular, slightly accepted that the Midwest premium is a pass-through. Where it does have an impact is on free cash flow. But the $250 million in guidance is roughly in line with the $3,000 a metric tonne, which is LME and Midwest included. I think this morning, it was closer to $3,100, but very much in alignment with the guidance we’re providing.

Timna Tanners: Okay. Thanks. And I guess a final one for me. I’ll hand off is you mentioned some lingering impacts in the fourth quarter from productivity challenges and issues. I’m just wondering, if you could give us — are we fully behind on those kinds of challenges or will some of that linger into the first half?

Timothy Myers: Yes. I would say that, first of all, Tennessee and Davenport recovered in the third quarter, pretty much ran at our expected rates through the fourth quarter. Lancaster, we didn’t make it all the way back by the end of the fourth quarter. I think in December, we ran a little bit over 75% of our demonstrated capacity prior to that outage. That’s really the difference between the top of the range and the center of the range. We came in at the center. I’d say that Lancaster was about $15 million less than we would have liked. We have run the month of January at or above that pre-outage level off of the hot mill. So we’re recovering backfilling inventory positions, taking down backlog that we brought into the year.

So that will have a little bit of absorption overhang and 2022 pricing in industrial wasn’t quite as good as 2023. So there’s a little opportunity there. But that overhang will be behind us before we exit the quarter. And right now, our operations are running really well.

Timna Tanners: Okay. Great. Thank you.

Operator: Thank you. One moment for our next question, and that will come from the line of Curt Woodworth with Crédit Suisse. Your line is open.

Curt Woodworth: Yes. Thanks. Good morning.

Timothy Myers: Good morning, Curt.

Erick Asmussen: Good morning.

Curt Woodworth: I was hoping you could maybe provide a little bit more granular level detail with respect to the guidance. So if we look at the pro forma EBITDA result for this year at $635 million, and then you outlined last quarter, it’s about a $100 million kind of outage related issues. So that would put you like kind of a 735 base. And then with respect to the Phase 2 investment program, you did, I believe, finished the casting for the Davenport and I think there was some work done at the hot mill Lancaster. And I know you outlined $75 million of uplift from those projects. But I assume you’re not going to maybe get all of that or partial of that this year. But to me, it seems like just the base business comp would be maybe $750 million of EBITDA and then the low end of the guide is $650 million.

So it seems to insinuate either maybe much more negative price cost or other things going on. So I mean, maybe if you could disagree you can just help us walk through kind of the bridge and if you have a segment level outlook, that would be helpful?

Timothy Myers: Let me touch on two big ones, I think, that you mentioned there. The first one is Phase 2 growth. What do we see flowing through? So we brought up the casting capacity in the second half of last year. We got a full quarter of running that in the fourth quarter. So when we unpack the Phase 2 growth initiative, we said it was roughly two-thirds, one-third between Davenport and Lancaster with Lancaster being the more significant. So if you think about Davenport being $5 million or $6 million a quarter, we got a quarter last year. So we’re going to see a benefit this year between $15 million and $20 million of EBITDA. The Lancaster project the installation is put it in two phases. And really, the endgame here is we want to increase the throughput on the hot mill by 15%.

The first half of the installation, which we did last year, really focused on improving throughput upstream of the hot mill, particularly the scalper and then we put the frame and the foundation in for the fourth stand. We can’t really accelerate the throughput on the hot mill until we put the actual drives and motors and that’s the part of the outage that we’re going to do in 2024. So we’re really not going to get a benefit for that part of Phase 2 this year. And then I think the big issue for us is Europe. Europe is almost offsetting the North American EBITDA earnings growth that we’re targeting. If we look at — I mentioned the fourth quarter, we were down 40% year-on-year in demand in Europe and we are seeing a similar comparable in the first quarter.

That takes our largest facility in Europe, the one in Hungary, to essentially break even. We’ve got some headwinds in our Building & Construction segment over there that I mentioned, about 30% of our sales in the segment. So we’re seeing a significant decline in Europe, and we’re right now projecting that that’s going to continue on because we haven’t seen any significant change in order behavior. So that could be upside to the outlook that we’re providing. But at this point, until we see it, we’re not going to forecast it. And then China opened up a little soft year-on-year. I think it’s still too early to say whether that’s endemic. We’ve definitely seen more pressure on domestic pricing in China. If you think back to last year, during the Chinese New Year, they were locked down during COVID.

So I’m hoping that part of it is just the comparable that we’re seeing in January in order activity because people were away from the businesses, and we’ll see that restore. But right now, China is also a little bit soft for us. So those are the big offsets versus the growth that we’re seeing in our North American assets.

Curt Woodworth: Okay. And then with respect to the B&C business, can you just kind of talk to the backlog strength there? And then it seems like the business is still performing extremely well from an EBITDA perspective. So pricing obviously so good at least in North America. So maybe just talk to your expectations for that business this year? And then is there any update on some of the strategic options you were evaluating for that business? Thank you.

Timothy Myers: So I would say that that business continues to perform well. 70% of the sales are in North America, but I would say that the North American region is also more profitable because we have a larger footprint here. The Kawneer brand is well established in North America over a century old. And so we’re continuing to enjoy good conditions with our systems business here in North America. We’ve continued to be able to pass-through inflation. Our order book looks good. I think I’ve shared in the past, it’s a project-by-project business and it also has an in-and-out element to it. So you can always feel good about two quarters out. Right now, I feel good about two quarters out. We’ve got to keep an eye on what happens with the U.S. economy to see if that changes.

As I mentioned earlier, Europe is not really contributing strongly to BCS performance. And then part of that business is a products business. It’s basically a coil coating business in Europe. And then here, it’s — we make ACM, which is also a coated product. That business is a little soft right now, very similar to — particularly, I’m talking about in Europe, very similar to what we’re seeing in the rolling business. The coil coating business for us in Europe is very soft right now. In regards to strategic alternatives, that business continues to perform well. We haven’t changed our view of strategic alternatives, but I also don’t think we’ve changed our view on the capital markets. So we’re continuing to enjoy strong performance in BCS and right now, I feel pretty good about it.

Curt Woodworth: Okay. Great. Thanks a lot guys.

Operator: Thank you. One moment for our next question and that will come from the line of Corinne Blanchard with Deutsche Bank. Your line is open.

Corinne Blanchard: Hey, good morning, Tim and Erick. Two questions from my side. The first one, can you — we heard from your peers about the beverage segment can destocking happening and likely happening for the next few months. So just trying to understand what’s your view there? And then the second question might be more for Erick, but I noticed the corporate adjustment for EBITDA normally has been negative and I think this quarter, you had a positive. So trying to think about what the rationale there and how to think about it going forward this year?

Timothy Myers: Perfect. Well, I’ll take it Corrinne. Thanks for the questions. I’ll take the can sheet question, and Erick can cover the corporate adjustment. From a can sheet perspective, first of all, we’ve got relatively small exposure there. I mean we’re, I think about 4% of the North American market, if I recall. We secured that across six customers. And each of those contracts has min/max requirements. So we have seen some of our customers pulling at the min in the first quarter. I’ve read, in fact, I saw last week that CRU published something that the can sheet market was down 10%. We’re not seeing that. If I look at our first quarter, I would say that we’re probably off about a little less than 5% versus a straight line.

If you think 300 million pounds, 75 million pounds a quarter, I think we’re right now looking at being about 4 million pounds below that this quarter. So we’re — I think we’re somewhat isolated from it just by the nature of our contracts. And as I said earlier, the growth that we’ll see this year is, we were ramping up in the first and second quarter. So we’re already ramped up to that rate and running at that rate in the first half of this year. So we should see incremental growth year-on-year.

Erick Asmussen: Corinne, as it relates to corporate, two items to point out. One would be stock. You’ll see it in the appendix pages on the walk of adjusted EBITDA, stock-based compensation expense, which we’ll call out, but we did true-up the performance share adjustment in the quarter, and so you’ll see that impact on the run rate. And then due to our operating performance, we did have a true-up of incentives in the quarter was created favorable adjustments to corporate.

Corinne Blanchard: All right. Thank you for the color.

Operator: Thank you. One moment for our next question. Will come from the line of Emily Chieng with Goldman Sachs. Your line is open.

Emily Chieng: Good morning, Tim and Erick. My question is just around perhaps if you could help us with the EBITDA bridge through to 2024? You did mention, I think, in your remarks that if you were to take down the land cost on mill during 2023 that could have been a negative EBITDA outcome for that outage. But when you look at that being pushed into 2024, any comment that you’d made there around if that would still be a negative EBITDA impact and what the bridge through to — from ’23 to ’24 could look like as well? Thank you.

Timothy Myers: I think the simple answer is, if we execute well, that should be a $50 million uplift next year, assuming that we can get all the inventory in place. What we typically do, Emily, is we’ve got more capacity downstream in the hot mill in Lancaster. The cold mills cannot run the hot mill. And so what we do is we try and build an inventory from Lancaster and some — our other plants in the network so that we would have that inventory prepacked and then we would be able to ship right through it, so to speak. So if the plants operate the way they’re supposed to, I would expect to get the uplift for Phase 2 in Lancaster next year.

Emily Chieng: Understood. And just sort of confirm the comment you made there was more to do with some of the inventory that would have had to be done this year versus what you’d be building out throughout the course of ’23 in preparation for the outage in 2024?

Timothy Myers: Exactly. So what you have embedded in our forecast this year is we will be building some inventory. And it’s a sizable amount of inventory, I think 50 million pounds that could have been revenue bearing, right? So we won’t have to replicate that next year. That’s why I think we’ll get the full benefit. The other big question mark, obviously, for 2024 is how does Europe recover? Because that — right now, we’re forecasting that to be a significant headwind in 2023.

Emily Chieng: Understood. That’s very clear. Thank you.

Operator: Thank you all for participating in today’s question-and-answer session. I would now like to turn the call back over to Mr. Tim Myers for any closing remarks.

Timothy Myers: Thank you, Sherry. Yes, I think simply in closing, we’re excited about 2023 and the opportunities that we have to grow earnings and continue to generate strong returns for our shareholders. I really look forward to giving you another update next quarter, and thanks again for joining us.

Operator: Thank you all for participating. This concludes today’s program. You may now disconnect.