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Constellium N.V.  (NYSE:CSTM)
Q1 2019 Earnings Call
April 24, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day ladies and gentlemen, and welcome to the Constellium's First Quarter 2019 Earnings Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions)

I would now like to turn the call over to Ryan Wentling, Director of Investor Relations. Sir, you may begin.

Ryan Wentling -- Investor Relations

Thank you, operator. I would like to welcome everyone to our first quarter 2019 earnings call. On the call today are our Chief Executive Officer, Jean-Marc Germain; and our Chief Financial Officer, Peter Matt. 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 20-F.

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 IFRS disclosures.

I would now like to hand the call over to Jean-Marc.

Jean-Marc Germain -- Chief Executive Officer

Thank you, Ryan. Good morning, good afternoon everyone, and thank you for your interest in Constellium. On Slide 5, you will see some of the highlights from our first quarter performance. Shipments were 413,000 metric tons. That's up 6% compared to the first quarter of 2018. We continue to successfully execute on our strategy of increasing shipments to the automotive market.

Automotive shipments increased 18% compared to the first quarter of last year. This was primarily driven by Bowling Green, which we now consolidate following the acquisition of our partners 49% interest in January. Our revenue increased 11% to EUR1.5 billion. This was primarily due to the consolidation of Bowling Green revenues and improved price and mix.

Our net income of EUR24 million compares to a net loss of EUR24 million in the first quarter of last year. Adjusted EBITDA was EUR135 million. That is a record first quarter for the Company, and up 12% compared to the first quarter of last year. A&T had an exceptionally strong quarter, benefiting from strong end market demand and solid operational performance. P&ARP also had a good quarter with growth in both packaging and automotive shipments and very good execution. We continue to make good progress in the ramp up of our new automotive CALP line.

Our AS&I business is experiencing higher cost related to the planned build out of our footprint as we have indicated on our recent calls. Looking forward, for the Company, we are maintaining our adjusted EBITDA guidance of 8% to 10% growth in 2019. Free cash flow was EUR73 million in the first quarter. I am very proud of this result. Our first quarter performance is a meaningful first step toward achieving our free cash flow guidance of over EUR50 million in 2019.

On Project 2019, we increased our run rate cost savings to EUR60 million as of the end of the first quarter. We remain on track to reach our goal of EUR75 million of run rate cost savings at the end of the year. Overall, I am very pleased with our first quarter results. Record first quarter adjusted EBITDA and strong free cash flow generation leave us well-positioned to deliver on our 2019 targets. We remained focused on executing on our strategy and delivering on our 2022 objectives of over EUR700 million of adjusted EBITDA and leverage of 2.5 times.

With that, I'll now hand the call over to Peter for further details on our financial performance. Peter?

Peter Matt -- Executive Vice President and Chief Financial Officer

Thank you, Jean-Marc, and thank you everyone for joining the call today. Turning now to Slide 7, you will find the change in adjusted EBITDA by segment for the first quarter of 2019 compared to the same period of last year.

For the first quarter of 2019, Constellium achieved EUR135 million of adjusted EBITDA, an increase of EUR14 million or 12% year-over-year. P&ARP adjusted EBITDA of EUR59 million increased by EUR7 million. A&T adjusted EBITDA of EUR52 million increased by EUR16 million. AS&I adjusted EBITDA of EUR29 million decreased by EUR7 million. And lastly, Holdings and Corporate was EUR5 million, EUR2 million higher than last year but in line with our guidance of approximately EUR20 million for the full year 2019.

Now turn to Slide 8, and let's focus on the P&ARP segment. Adjusted EBITDA of EUR59 million increased 14% compared to the first quarter of last year. Volume was a tailwind of EUR8 million as shipments increased 9%. Automotive Rolled Products shipments were up 27% benefiting from a consolidation of Bowling Green shipments and the continued ramp up of our automotive capacity, both of our CALP line in Neuf-Brisach, France and in Bowling Green, Kentucky are running well. We expect to ramp up these lines through 2019 with full production in 2020.

Packaging shipments increased 4% during the quarter on strong demand and solid operational performance. Price and mix was a headwind of EUR5 million as we continued to see some of the mix effects we experienced in the fourth quarter of last year. Costs were a tailwind of EUR6 million as favourable metal costs were offset by incremental costs in the ramp up of our automotive programs and by increased planned maintenance and reliability spending. FX translation was a tailwind of EUR2 million and the application of IFRS 16 was EUR1 million tailwind, which were offset by Bowling Green results.

Now turn to Slide 9, and let's focus on the A&T segment. Adjusted EBITDA of EUR52 million increased 44% compared to the first quarter of last year. Volume was a EUR3 million tailwind on higher aerospace shipments. Thanks to a great team effort our TID shipments have largely recovered after the manufacturing challenges we experienced in the second half of 2018.

Price and mix improved by EUR11 million on strong market demand from both aerospace and TID. Higher TID prices represented the majority of the price and mix benefit in the quarter. Solid operational performance enabled the business to keep costs flat. And lastly, FX translation was a tailwind of EUR2 million and the application of IFRS 16 was a EUR1 million benefit.

Now turn to Slide 10, and let's focus on the AS&I segment. Adjusted EBITDA of EUR29 million decreased 19% compared to the first quarter of 2018. Volume drove of EUR5 million improvement on increased automotive extruded product shipments. Cost was a EUR14 million headwind compared to the first quarter of 2018 due to costs related to new product launches and the expansion of our footprint in AS&I. The application of IFRS 16 was a EUR3 million tailwind.

Looking forward, we expect second quarter results to be below last year's second quarter. As I will remind you, 2019 is a year to pause, regroup and deliver in AS&I. Consistent with that message we are targeting 2019 nominations of about half of what we have achieved in recent years. We expect these nominations to be largely weighted toward the second half of the year.

Now turn to Slide 11 and I will update you on the progress we have made on our cash improvement initiative, Project 2019. By now you know there are three pillars of Project 2019; Cost Reduction, Working Capital Improvement and Capital Discipline. On cost savings, we achieved an additional EUR17 million of annual run rate savings during the quarter -- first quarter of 2019, bringing our total run rate to EUR60 million of savings. These savings resulted from over a variety of different initiatives including a number of savings actions by our procurement team; secondly consolidating and harmonizing our health and benefit programs in the US; and thirdly several metal optimization initiatives. We remain confident in our ability to deliver on the EUR75 million of annual run rate savings by the end of 2019.

Now, let's move to trade working capital. We continue to expect trade working capital to be a use of cash. Much of this is connected to the substantial growth in our business. This is a good reason for investment and it will continue. We are working hard to offset some of this growth with working capital reduction across the business. And we are proud of our much improved working capital performance in the first quarter where we managed to more than offset the working capital growth associated with our growth initiatives. We are confident that trade working capital optimization continues to represent a meaningful cash improvement opportunity for the Company.

With respect to capital spending, we continue to expect spending in 2019 of EUR265 million including Bowling Green. We believe this level of spending strikes the right balance between maintaining our assets and investing in our future. I want to stress that we remained very focused on capital discipline and that the projects we are investing in are linked to firm customer contracts and come at attractive IRRs and paybacks.

Now, let's turn to Slide 12, and discuss the balance sheet, our free cash flow and our liquidity position. Our net debt at the end of the third quarter was EUR2.2 billion and our leverage was 4.3 times. The purchase of Bowling Green increased net debt by approximately EUR160 million. While the initial application of IFRS 16 on January 1st, 2019 resulted in a EUR102 million increase in debt, the combination of these effects increased our leverage by 0.5 times in the first quarter. I want to stress that we remained committed to deleveraging and expect the leverage to drop below four times by the end of the year.

As Jean-Marc noted in the beginning of the call, we generated free cash flow of EUR73 million in the first quarter. This included the benefit of EUR20 million from incremental factoring associated with returning our factoring balance back to historical levels. We are very proud of this performance and are looking forward to delivering on our free cash flow target in -- in excess of EUR50 million in 2019 and building a track record of consistent and strong free cash flow generation.

As a consequence of our free cash flow generation in the quarter and the strength of our liquidity position we began the deleveraging process during the first quarter by repaying EUR55 million of lease obligations at Bowling Green. As we generate additional free cash flow we expect to continue to reduce our gross debt levels. As you can see in our debt summary on the top -- around the bottom left hand side of the page, we have no bond maturities until 2021. And our 2021 maturity is very manageable at 0.6 times our LTM adjusted EBITDA. Our cash plus amounts available under committed facilities was EUR539 million at the end of the first quarter and we remained very comfortable with our current liquidity position.

I will now hand the call back to Jean-Marc.

Jean-Marc Germain -- Chief Executive Officer

Thank you Peter. Turning to Slide 14, let me share a few end market updates. I'll start with the automotive market. Automotive remains a secular growth market for aluminum. We are confident that OEMs will continue to lightweight vehicles thereby increasing fuel efficiency and reducing CO2 and other emissions. Further, electrification of vehicles has significant potential for aluminum. Aluminum allows for lightweighting in order to increase the range of the vehicle and is the preferred material to make strong but light battery enclosures. Constellium is well-positioned to realize the benefits of the secular shift to aluminum in automotive.

Turning to the near-term trends, the outlook for North American automotive SAAR continues to be a slight year-over-year decline in 2019. The European auto sales are expected to remain flat in 2019. However, sales of light trucks, SUVs and luxury cars continue to outperform the market. And I'll remind you that we have more exposure to these types of vehicles. As far as Constellium is concerned, our automotive order books remained strong across both our rolled product and our extruded product platform. And we have seen only limited pockets of weakness in automotive to date. However we continue to closely monitor the market. We have been and will remain prudent with our investments. As I have noted many times in the past we will not make incremental investments without firm customer commitments and strong confidence in end market demand.

Let's turn now to aerospace. We expect Aerospace to continue to be a steady market driven by sustained OEM build rates and near record high backlogs at the major OEMs. In recent quarters, aerospace demand has exceeded our expected long-term CAGR of 2%. We expect this demand strength to continue in the second quarter. We remained focused on maintaining our leadership position with the major OEMs and expanding our relationships with business and regional jet manufacturers.

With respect to packaging, the market remained stable. In the US, we expect the continued growth of Auto Body Sheet demand to help tighten the packaging markets over the medium to long term. In Europe, demand continues to grow based on substitution of aluminum for steel. Aluminum cans are an increasingly preferred solution over glass or plastic packaging. Remember aluminum is infinitely recyclable and keeps the same properties after recycling. Constellium is well positioned to benefit from this trend as a significant producer of can sheet in both North America and Europe.

Finally, we continue to execute on our strategy of expanding into niche products and markets including transportation, industry and defense. We see strong or stable market for our rolled and extruded products in both Europe and North America.

Turning to Slide 15. We detail our financial guidance and outlook. We expect to deliver a range of 8% to 10% adjusted EBITDA growth in 2019 while targeting over EUR50 million of free cash flow in 2019 and our -- sorry and our 2022 targets are over EUR700 million of adjusted EBITDA and a leverage ratio of 2.5 times.

Thanks to the efforts from the team, our strong first quarter results represent an important step toward achieving a goal we set nearly three years ago, positive free cash flow in 2019. I am even more excited now than I was then as we expect to deliver not just positive but substantial free cash flow generation and another year of strong adjusted EBITDA growth in 2019. We remained focused on operational execution, harvesting the benefits of our investments, disciplined capital deployment and on shareholder value creation.

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

Questions and Answers:

Operator

(Operator Instructions) Our first question comes from the line of Curt Woodworth from Credit Suisse. You may begin.

Curt Woodworth -- Credit Suisse -- Analyst

Thanks. Good morning Jean-Marc and Peter.

Peter Matt -- Executive Vice President and Chief Financial Officer

Good morning Curt.

Jean-Marc Germain -- Chief Executive Officer

Hi.

Curt Woodworth -- Credit Suisse -- Analyst

Peter, do you expect a similar cost headwind near the EUR14 million in AS&I for 2Q year-on-year?

Peter Matt -- Executive Vice President and Chief Financial Officer

Well, we do expect the headwinds to continue into Q2. I wouldn't exactly quantify it as a kind of EUR14 million, but we do expect there will be some continued headwinds. As Jean-Marc said or as I said in the -- in my remarks, the Q2 will be lower than kind of last year and so in the back half we're hoping will inflect up.

Curt Woodworth -- Credit Suisse -- Analyst

Okay. I'm just having a hard time kind of understanding like the magnitude of that cost increase because it sort of like this is a business you guys have talked about sort of doubling EBITDA in three years to four years. And that the total capital spend for Mexico and Georgia was EUR30 million to build the facilities, now it's looking like call it EUR20 million of cost headwind, and -- Georgia was ramped -- I think started up in '17, Mexico '18. So could you just give us a little bit more color on what exactly these costs are for? And then would you expect to recover all these costs next year?

Jean-Marc Germain -- Chief Executive Officer

Yes. So Curt, I think you're right that we expanded in San Luis Potosi, Mexico; White, Georgia, but these are not the only investments we've made in the auto structure than industry business, right? We've expanded our footprint in Van Buren, Michigan; we've expanded in Dahenfeld, Germany; we've expanded in Gottmadingen. The expansion in Gottmadingen is actually bigger than the ones we've made in the US. We're expanding in Decin as well putting a second press in Levice, Slovakia. So, that and -- (inaudible) so on, there's more, right.

So the additional costs we're incurring are really about the start-up of these operations and the time between when you start running and the time you really hit full production rate. And what we're seeing, I think, I mentioned that on the call last time, for instance, we've hired 700 people in this business over the course of the late 2018 really. And then obviously as we are now starting production in many of those facilities, we are experiencing higher cost because you don't run at full capacity and you have yield losses that are more important as you're starting and debugging your process. So all that is creating additional costs. These are transitory, but because of the very large amount of different projects we're starting, this is taking a bit of time to work through the system.

As Peter mentioned, we expect that we're going to turn the corner this year in terms of these cost headwinds and that will end up for the year above last year in terms of EBITDA for AS&I. So really the way I look at it is, clearly this is not our best performance ever operationally in AS&I. There's lots going on. We know what we have to do. We're focused on it. We're doing it. We'll be turning the corner and I don't see any reason to change my very optimistic view about the value creation that is possible for us this year in terms of EBITDA growth year-on-year and certainly into the future years.

Curt Woodworth -- Credit Suisse -- Analyst

Okay. And then just a follow up on automotive. In terms of thinking about the, I guess, EBITDA trajectory of the two CALP lines, can you talk about when you would expect more I guess material earnings out of the CALP lines. Can you give us a sense of what the utilization rates are today for Bowling Green and the new line at Neuf-Brisach?

Jean-Marc Germain -- Chief Executive Officer

Yes, sure. So we're -- so in Bowling Green, I'll remind you we said, this year 2019 will be a negative contribution right? EUR10 million to EUR15 million is what we indicated back at the Investor Day in December. The results of the first quarter and the progress we've made make me confident that we'll be toward the better end of the range. And we'll see and it was about EUR4 million, EUR5 million negative headwind in Q1.

Now, both times in Neuf-Brisach and in Bowling Green are close to the 70% utilization rate and it depends on what months we're talking about. But that's kind of where we are and well on track to be at full production rates by the end of the year. And if you think of it, full production rates in 2020 doesn't mean full product and full profitability because you still have optimization to do on your cost base, on your process efficiencies so far so on. So we still see some dues in terms of getting from '20 to '21 getting some better profitability out of these lines. So we're really in a good place now.

Curt Woodworth -- Credit Suisse -- Analyst

And what do you view as your total capacity for auto sheet today?

Jean-Marc Germain -- Chief Executive Officer

Well, 100,000 tons in Bowling Green. 180,000 tons in Europe between the CALP lines we have. And you know there maybe a little bit of creep at a time, so 300,000 tons by the time we're around 2022 is not out of sight. We still have a lot of work to get there obviously, but that's kind of what I'm looking at now.

Curt Woodworth -- Credit Suisse -- Analyst

Great. Thank you.

Jean-Marc Germain -- Chief Executive Officer

Sure.

Operator

And our next question comes from the line of Jeremy Kliewer from Deutsche Bank. You may begin.

Jeremy Kliewer -- Deutsche Bank -- Analyst

Hey, good morning and congrats on the good quarter.

Peter Matt -- Executive Vice President and Chief Financial Officer

Hi, good morning Jeremy.

Jeremy Kliewer -- Deutsche Bank -- Analyst

Regarding to your Aero and Transport segment and I guess you have great margin there both this quarter and last quarter. So, how should we look at that in that whatever EUR720 per ton margin moving forward. Is it going to contract much or is this TID and additional Aero volumes going to help out moving forward?

Jean-Marc Germain -- Chief Executive Officer

Yes, well, I think we were very pleased with the performance in A&T this past quarter and this past year as well. And 2018 was a good year and we're starting 2019 very strong. I think it's a result of our strategy which is really focused on higher value added products and making sure we optimize, we run our mills with developing our TID presence and making sure we get paid for it as well.

So that's got as many pillars to this outcome. So, I view the performance as sustainable, knowing that if you think of Q2 last -- Q1 last year was been -- when you look at the comparison to last year, Q1 was a little bit weak. Q2 was super strong in A&T and this year we have a very strong Q1. Q2 will be more difficult. But over time as I look at the full year, I look at the team that is performing well in terms of pricing the products, placing the right products with the right customers or executing in the plans very strongly, so, I look at an EBITDA that will continue to grow overall for A&T segment as a whole in 2019 compared to 2018.

Jeremy Kliewer -- Deutsche Bank -- Analyst

Right. Is the pricing increase, is that capable due to like increase in aerospace volumes so that there's less supply on the TID? Or how are you I guess increasing those prices?

Jean-Marc Germain -- Chief Executive Officer

So, I think a lot of it has to do with the select, product selection, right. I mean there's -- the aerospace market is strong, but I'd say, I believe that there is capacity in this market to supply the market. So it's really about making sure we focus on the right markets in TID, build the right relationships with customer, demonstrate the value of our products, go more directly to the OEMs as opposed to going through distributors and making sure we build that connectivity and get paid for it. So I think a lot of it, I mean, obviously the economy overall is favorable, right. But I wouldn't say that we're in a situation where there's a squeeze and there's a significant imbalance between supply and demand. We're not in that situation.

Peter Matt -- Executive Vice President and Chief Financial Officer

Yes, and Jeremy as we said in the kind of prepared comments, most of the price benefit came from kind of TID. And I think most of that is really as a result of the implementation of the strategy of trying to move into higher value-added products and diversify the mix over time.

Jeremy Kliewer -- Deutsche Bank -- Analyst

All right. Thank you. All right Jean, thank you Pete.

Operator

And our next question comes from the line of Matthew Korn from Goldman Sachs. You may begin.

Matthew Korn -- Goldman Sachs -- Analyst

Hey, good morning Jean-Marc. Good morning Peter. Again congratulations for the quarter.

Peter Matt -- Executive Vice President and Chief Financial Officer

Thanks. Good morning Matt.

Matthew Korn -- Goldman Sachs -- Analyst

So, it's a question I've been getting from a few people. I find it interesting, it's that, we've been hearing for a while it's almost (inaudible) now, but the potential tightening of the aluminum can stock market as capacity switches to the higher margin opportunity in ABS, and over the last quarter, we've heard some comments from some of the packaging industry that this actually may be starting to kick in and availability is tight. I know that auto and aero get all the press, but for you, is this an opportunity that could be emerging may be sooner than later? Do you have that potential now that capacity seems to be tightening to rework any of your expiring contracts in more favorable terms. Is that something within sight?

Jean-Marc Germain -- Chief Executive Officer

Yes. So, when you say sooner or rather than later, I mean, we've been talking about a tightening of the market for I think five years right, I mean, we as an industry. And there's always been enough can sheet to make all the cans that are needed. So, yes, I mean the situation is a little bit tighter, but I don't think there's any supply risk or security of supply risk or major squeeze that are happening.

Now, over time I think it is important for us to get paid and to get a fair return on our capital, which is quite significant in this business. And we are very keen to when the opportunity arises which is that contract renewal time to engage in a discussion with our customers to make sure that we find a balanced situation between us and them in terms of them being able to continue to develop their business and us getting paid for what we do. You know those contracts are long term, so it doesn't happen all at once, it's progressive. Things may change in the future.

There may be new developments in the market, but certainly we see every contract renewal opportunity as an opportunity to generate more value for ourselves. Make sure we continue to get paid -- we get paid better for what we make and we continue to have the means to invest in this business and deploy the capital that is needed to make those products better, more efficient, and more productive for our customers benefit. So, we're very focused on that. And I think over time it should payout nicely in terms of rebalancing the profit to across the supply chain.

Matthew Korn -- Goldman Sachs -- Analyst

Do any of those reopeners, any of those opportunities exists within the next one to two years?

Jean-Marc Germain -- Chief Executive Officer

I don't want to go into specifics, but do not expect anything significant in the next one year or two.

Matthew Korn -- Goldman Sachs -- Analyst

Okay. All right. And switching gears over to Aero. And we did hear from a notable aerospace airframe supplier last night. Now that given reduced build rate for the 737 Max, there's a risk you could see some destocking activity triggered this year. How can we best think about your exposure say that this particular build rate reduction lingers or worsens into the back half of the year?

Jean-Marc Germain -- Chief Executive Officer

Yes, so, I don't think we've got significant exposure. We've got a very diversified portfolio of products. We -- obviously monitor the situation closely. We have seen no impact so far. And there would be an impact in terms of reduced build rates. From my window as I -- from where I sit now, I see us having many options to offset that.

Matthew Korn -- Goldman Sachs -- Analyst

All right. Thanks very much.

Jean-Marc Germain -- Chief Executive Officer

Sure.

Operator

And our next question comes from the line of Martin Englert from Jefferies. You may begin.

Martin Englert -- Jefferies & Company -- Analyst

Hi, good morning everyone.

Peter Matt -- Executive Vice President and Chief Financial Officer

Hi Martin.

Martin Englert -- Jefferies & Company -- Analyst

So improvements in working capital were a notable driver of the positive free cash flow during the quarter. Can you discuss some of your initiatives, improved payment terms as a legacy agreements and if this is more of an annual step change that we should expect in 1Q? And then also remind us of your trade working capital expectations for the full year?

Peter Matt -- Executive Vice President and Chief Financial Officer

So, let me just step back a little bit and kind of talk about free cash flow generally for a second because I think it's something that we're super proud of in terms of achieving the working capital improvement that we did in the quarter. If you -- and the free cash flow that we did in the quarter, so if you look at kind of that from the standpoint of where the benefits are, I think they came from, really from all different pieces of working capital. We were able to manage our receivables better. We continue to work down our inventories in the quarter and we managed to kind of extend payables. But I think kind of this is just again one tool that we expect to bring to the table and managing kind of strong free cash flow and sustainable free cash flow in 2019.

So, what we said is that just in terms of the second part of your question, we had said that, we thought that working capital would be a use of EUR25 million to EUR45 million in the year. Obviously, the first quarter was much better than that and we're going to continue to work off of that. The challenge that I think you need to kind of keep in mind is that, trade working capital can swing for reasons that aren't always in your control. And I'd remind you of things like resolve and kind of some of the 232 actions that lead us to take certain actions vis-a-vis working capital. So based on what we see, we think we have it under control, but we're not moving away from that forecast, but we obviously are hoping to beat it.

Martin Englert -- Jefferies & Company -- Analyst

Got it. Thank you for the all the incremental detail there. And also just circling back on the packaging business. Are there any volumes in 2019 that you're selling into the market that are not under contract. If so -- if you can talk about any of the pricing dynamics there?

Jean-Marc Germain -- Chief Executive Officer

Yes. So we -- this year we've made a choice to not contract out all our capacity to make sure we are fully reliable and we're able to respond to peak demand. We are not after making a quick buck and extort extraordinary prices from customers that have a need at a certain time. We're in this business for the long term. There's only a few suppliers, only a few customers and we want to make sure that we have a balanced relationship with our customers. So pricing may drift up a little bit, but nothing really to write to home about.

Martin Englert -- Jefferies & Company -- Analyst

Okay. Thanks for the detail there and congratulations on the quarter.

Peter Matt -- Executive Vice President and Chief Financial Officer

Thank you.

Jean-Marc Germain -- Chief Executive Officer

Thanks.

Operator

And our next question comes from the line of Piyush Sood from Morgan Stanley. You may begin.

Piyush Sood -- Morgan Stanley & Co. -- Analyst

Jean-Marc, Peter congratulations on the quarter.

Peter Matt -- Executive Vice President and Chief Financial Officer

Thank you.

Piyush Sood -- Morgan Stanley & Co. -- Analyst

Couple of questions. First one, could we talk a little bit about your thoughts for 2Q profitability companywide? I think you already said AS&I will be lower. The reason I'm asking is, the full year guide is unchanged after the 1Q beat and start-up costs are front loaded this year. And lastly, 2Q last year was very strong. So are we looking at 2Q down year-on-year before growth picks up again in the second half?

Jean-Marc Germain -- Chief Executive Officer

Yes. So, Piyush, you're right that Q1 is strong and Q2 is a different comp compared to last year. I think the way I think of the full year guidance is, we are tracking toward a higher end of the guidance on the base of the solid gains we've had in Q1. I mean, it's still early in the year to say exactly where we're going to land at the end of the year. We'll keep you updated, I think we're building a track record of letting you know what happens as it happens. So, I'm confident, we're tracking toward the higher end of the guidance. And I think maybe Peter has a few more comments to add.

Peter Matt -- Executive Vice President and Chief Financial Officer

Yes, I mean, I think Piyush just looking at the year, again if we just take the segments one-by-one and looking at P&ARP, Bowling Green is a critical piece of the pie this year, we had guided it being 10 to 15 negative. Obviously, in the first quarter, we feel like we've done a little bit better than that. So maybe we're at kind of a better end of our guide on that front. And I think in terms of, as we've said in the general comments, automotive demand for our products remained strong and the packaging demand remains very strong. So, if we can produce the tons, we should be able to kind of maintain a decent performance in P&ARP.

In A&T, again we've talked about this a little bit already on the call, but shipment volume there, we think can continue to remain robust there as we've got TID as kind of back to where we had it before and Aerospace remained strong and as Jean-Marc said in his prepared remarks we expect that to remain strong. So again most of that business is contracted. So again, if we can produce the tons we should be able to sell them and generate decent results.

And AS&I, as we've said is going to be a challenge, but we are expecting year-over-year improvement in adjusted EBITDA and that's based on kind of working through some of these start ups and moving in the right direction, which we're confident we can do.

Piyush Sood -- Morgan Stanley & Co. -- Analyst

Great. Appreciate that color. And a quick question on your free cash flow. So 1Q, you're already above the EUR50 million mark. So the remaining nine-months, do you expect some more positive free cash flow? Or do you expect the remainder of the year to be a use of cash?

Peter Matt -- Executive Vice President and Chief Financial Officer

Yes. So, let me just start again by stepping back on free cash flow. So, free cash flow multiple levers here in the Company. One of the things that's really exciting for us is that, I think we've got the whole team focused on using all these levers to get to kind of a strong free cash flow. In the first quarter of the EUR73 million remember EUR20 million is related to factoring. So if you take that out we're positive EUR53 million in the quarter. We feel, I would say, we feel very good about kind of free cash flow for the rest of the year and our goal is not to generate free cash flow in one year, it's about sustainable free cash flow. If you ask why are we not upping our guidance on free cash flow, it's because there are some things that can swing. As I said earlier in the call, things like working capital sometimes it's completely out of your control.

Obviously, we feel like thus far we've been able to overcome the growth investment piece of trade working capital, but I think we want another quarter to kind of see how the year is panning out. And then with some better visibility we'll reconsider our guidance for the full year.

Piyush Sood -- Morgan Stanley & Co. -- Analyst

Right. Thanks guys. That's really helpful and all the best.

Jean-Marc Germain -- Chief Executive Officer

Thank you.

Peter Matt -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

And our next question comes from the line of Christian Georges from Societe Generale. You may begin.

Christian Georges -- Societe Generale -- Analyst

Yes, thank you. Good morning.

Peter Matt -- Executive Vice President and Chief Financial Officer

Hi Christian.

Christian Georges -- Societe Generale -- Analyst

I was interested -- just getting back on your Aerospace division. I think you just said that Q2 would be more difficult. I mean it's been a great Q1, EUR52 million EBITDA. That's not dissimilar to what you had in Q2 '18 and if I look at your -- the commercial spread, you added 20% which is the first time we've seen that in long time. So when you're saying 2Q more difficult, are we looking at a similar kind of the contrast between both quarter that we had in third quarter last year versus second quarter. Is that the kind of idea?

Jean-Marc Germain -- Chief Executive Officer

No, I think by more difficult, we mean, the base, the comparables from last year is very high. So I think we beat by more than 40% from last year's Q1 EBITDA. I mean, I'm certainly not expecting to beat Q2 by 40%. But we're working hard to have a solid Q2 as well.

Christian Georges -- Societe Generale -- Analyst

Q2 last year was pretty strong as well, right? So, even if we are a bit less than Q2 last year -- yeah.

Jean-Marc Germain -- Chief Executive Officer

Yes, that's --

Peter Matt -- Executive Vice President and Chief Financial Officer

Yes, again just to emphasize what Jean-Marc is saying, we're not saying that Q2 is going to be weak in any regard. All of the contracts are in place and the pricing is in place, so we feel really good about Q2, but just remember the jump of last year Q1 to Q2 was very substantial. We don't expect that big a differential this year.

Christian Georges -- Societe Generale -- Analyst

Okay. And if I look at P&ARP, again just looking at your commercial spreads, the delta with the price of aluminum, it looks one of the weakest you've had in some time. I think, I calculate about 17%. I mean the inclusion of Bowling Green, does this eventually have an impact on the margin you're able to achieve over and above the cost of aluminum?

Peter Matt -- Executive Vice President and Chief Financial Officer

I mean Bowling Green is definitely negatively impacting the results in the quarter, right as we said earlier. So if you kind of take apart the numbers, what you can see is that Bowling Green is basically a negative 5, right? So what we said earlier was, we believe that Bowling Green actually, we're performing well at Bowling Green, but it is definitely negatively impacting our P&ARP results.

Now, over the course of the year, we expect to improve that and so for negative 5 in Q1, hopefully by the time we get to the end of the year, we're kind of making a positive contribution there.

Christian Georges -- Societe Generale -- Analyst

Okay. And then (inaudible) thinking about is, compared to Q1 last year when you only included part of it.

Peter Matt -- Executive Vice President and Chief Financial Officer

Well remember, it wasn't included last year because remember we don't consolidate it. So this is the first time we're consolidating it and so it's -- it shows up in our bridge in the other bucket. And obviously next year when we have a full year comparison, you'll start seeing it broken out by all of the different bridge items. Not it specifically, but it will be included in all the different bridge items.

Christian Georges -- Societe Generale -- Analyst

Okay. Now it is very clear. Understand. And then very last thing on that resell getting together with Braidy, just in terms of your experience I think they are aiming for 300,000 tons of automotive aluminum. How long will that potentially take to reach a market like five years in your experience this kind of size?

Jean-Marc Germain -- Chief Executive Officer

Well, I mean, it's -- I mean, at the moment it is a project right. That is reasonably advanced, so it is a project, the ground still needs to be broken, the power needs to be brought to site. So building cast out to rolling mill, finishing equipment and all that you're talking certainly more than five years altogether to get it to commercial production. And in my experience when you look at the precedents, Logan Aluminum was 5 years to 10 years before they reached break-even between the time you break the ground and the time you reach breakeven. If you look at the Ma'aden example, which is a rolling mill in Saudi Arabia built by Alcoa. It's also a long-term project. So all these projects are long term.

Christian Georges -- Societe Generale -- Analyst

Okay. Thank you. Thank you very much.

Operator

Thank you. And our next question comes from the line of Matthew Fields from Bank of America Merrill Lynch. You may begin.

Matthew Fields -- Bank of America Merrill Lynch -- Analyst

Hey, Jean-Marc and Peter, and Ryan. Just two questions, we've talked a lot over the last five years as you rightly noted about the tightening packaging market. But when you look at the revenue over the cost of aluminum in your packaging sector, this quarter it's down as has been the case for the last several years. But I'm just wondering to -- and maybe to an earlier question, when are we going to start to see the uptick in pricing in can as your contract mix kind of changes and legacy contracts roll-up and kind of newer contracts roll-on? When -- what's the trajectory of that -- of the pricing in that segment?

Jean-Marc Germain -- Chief Executive Officer

Yes. So, it's important to not confuse the margin of a metal with pricing because you've got significant impacts of the mix in there right? So for instance, this year we've got less end stock than can stock, good and body stock, sorry, within can sheet. Even, you know, taking you into the week (ph) within auto, we've got less outers more inners. More of everything, but less of the mix. And then -- and those products have different prices because they've got different costs, right? There's more cost in making an end stock than there is in making body stock. You don't even have the same productivity in the mills, you don't even have the same raw materials. So all -- and all these fluctuate quarter-over-quarter.

So, if you look at an equivalent of value-added revenue, for instance, per ton, on a quarterly basis, it is very difficult to look at this and then conclude that prices are going up or prices are going down. You can have prices going up in both end stock and body stock and still the average value-added revenue divided by tons go down because of mix change. So, sorry for this longer opening preamble, right. But we are seeing better margins in P&ARP, again they are depressed by the inclusion of Bowling Green in Q1 and we are -- and I am quite optimistic that we will continue to see an improvement in margin over time in this segment.

Peter Matt -- Executive Vice President and Chief Financial Officer

And maybe just to add a little bit to that. So, remember on the auto side as we said before, we're ramping these lines up. We'll be at full run rate in 2020, but we'll still be getting the full realization of the profitability in 2021, right? Because once you ramp up these auto lines there's some optimization that needs to go on. And then, last or secondly on the can sheet side, I think you can infer from Jean-Marc's earlier comments that, we don't have a -- the big contracts coming up in the next one to two years, but then there's opportunity thereafter depending on market conditions. And we'll certainly be kind of looking at that very closely.

Matthew Fields -- Bank of America Merrill Lynch -- Analyst

Okay. That's helpful. Thanks. And then, as Novelis and Aleris work their way through the regulators, they maybe forced to divest some assets. Are there any assets in Europe, maybe duffle or one of Novelis' auto lines that you might be interested in acquiring and kind of like what's the level of comfort taking leverage up to to acquire something in a forced sale context?

Jean-Marc Germain -- Chief Executive Officer

Yes, so fair question. We are very focused on all the opportunities within our four walls. I mean, we've got plenty to do internally. We've got all these investment that we're ramping out that are going to generate positive EBITDA, that at the moment are generating negative EBITDA as you're seeing in some of our bridges. So that's what we're focused on.

As we've said a number of times, our priority in terms of capital allocation is deleveraging, right, and paying down debt, which we've started to do as Peter mentioned. We're repaying the leases that we inherited from the acquisition of Bowling Green. So, our level of comfort was bringing leverage up is very, very minimal. We don't want to do that. And we should never say never. But whatever we would do would be very, very carefully considered like we did with Bowling Green, right.

We took a long and hard look at the purchase of 49% in Bowling Green. We had an inside look into it obviously. We knew what was there. We felt that this was a compelling opportunity, but it took us some time before we decided to cross that bridge. So the likelihood that we acquire any assets even out of a full sale is very, very slim.

Peter Matt -- Executive Vice President and Chief Financial Officer

Yes and I would just kind of jump in to remind you that, one of the things that we think is so exciting about this story is that, we have all the tools within our four walls to generate kind of continued really strong earnings and free cash flow. Think about each of the businesses we've made substantial investments and so, it's a matter of kind of ramping them up as Jean-Marc said and they'll deliver earnings and cash flow. Think about Project 2019 where there's still we would say, kind of, significant additional room beyond even Project 2019 in the Company. So it's a -- there's the makings of a really good story both from earnings and cash flow without doing things on the outside.

Matthew Fields -- Bank of America Merrill Lynch -- Analyst

Okay. Thanks for -- thanks for that. Thanks very much.

Peter Matt -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

And our next question comes from the line of Sean Wondrack from Deutsche Bank. You may begin.

Sean Wondrack -- Deutsche Bank -- Analyst

Good morning.

Peter Matt -- Executive Vice President and Chief Financial Officer

Good morning, Sean.

Sean Wondrack -- Deutsche Bank -- Analyst

You guys have had a lot of success among your three sectors over the past three years in terms of growing on revenue and EBITDA. Have you seen any shift in sort of competitive intensity when you think about your three segments where maybe you see more entrants coming in, or more competition arising?

Jean-Marc Germain -- Chief Executive Officer

I wouldn't talk about new entrants really. But it's a competitive market. I mean, we've got very strong competitors that make good products for which we have a lot of respect. And yes, it's not easy everyday. But I don't think I would characterize it as increased competition or decreased competition. I think it's a very healthy robust level of competition that forces all of us to improve.

Sean Wondrack -- Deutsche Bank -- Analyst

Got you. And then shifting gears a little. When you think about your earnings and the market for aluminum scrap, obviously you recycle a lot of scrap. Has there been any discrete benefits there and what's your outlook for the scrap market kind of moving forward throughout the rest of the year?

Peter Matt -- Executive Vice President and Chief Financial Officer

Well, I would say, we expect the scrap market to remain kind of strong or kind of a benefit obviously because we -- given some of the trends in that market we would anticipate that they would continue at least for the foreseeable future certainly through the end of 2019. We do benefit from it in our packaging businesses as we've kind of called out in the past. And specifically this year we or in this quarter we highlighted the fact that we're getting some benefit from kind of metal in our results and specifically again in the packaging business. We would characterize it as kind of a handful of millions so to speak because there are, as we said in the past a number of kind of puts and takes on the scrap side. So it's not all good right from our vantage point.

Sean Wondrack -- Deutsche Bank -- Analyst

Right. Now, that makes sense. And then sorry to ask this question again, but just in terms of your debt stack, I think you have sort of mentioned you're kind of looking at the 2021 Euro Notes. Do you have any update there? Are you still looking at the capital market?

Jean-Marc Germain -- Chief Executive Officer

We're still looking. There was a -- as we said in the past, look the bonds are callable at par in May, we're watching the markets carefully. We note that they're very strong and we continue to watch.

Sean Wondrack -- Deutsche Bank -- Analyst

All right. Thank you very much.

Jean-Marc Germain -- Chief Executive Officer

Yeah. Thank you.

Operator

And our next question comes from the line of Karl Blunden from Goldman Sachs. You may begin.

Karl Blunden -- Goldman Sachs -- Analyst

Hi, good morning guys. Just couple of questions on the end markets. We discussed packaging a lot and tightening conditions there. Are you able to quantify what the utilization rates are in the industry in Europe and in North America in your opinion?

Jean-Marc Germain -- Chief Executive Officer

Yes, I think, our industry in rolling is working pretty much at full capacity both in Europe and North America. I mean we saw that there was surge in demand in Q4 in the US and everybody was scrambling certainly us and I believe our competition as well to deliver everything that was needed. We managed to work through it with our customers, but yes, it's very tight in both markets.

Karl Blunden -- Goldman Sachs -- Analyst

Got you. Similar question on the auto side. We're aware obviously of some shipments from Europe to the US, just given how tight the conditions are in the US. There's couple of capacity additions coming on from Novelis and we hear about this longer-term project at Braidy. Could you talk about your confidence that, that market will remain pretty much fully sold out? And how long those conditions might be maintained?

Jean-Marc Germain -- Chief Executive Officer

Yes. So, I think in Europe there is a bit of a extra capacity, you're right. And that's why it's being used to -- for international shipment. But by 2021, I believe we're back to a market which is more than balanced and actually would require new investments even in Europe in 2022, 2023. And I think in the US, the lines that are being built, I'm not talking about the Braidy lines yet, obviously, needed otherwise the market would be in a deficit as soon as 2021. So, I think we've got a pretty good horizon. And again this trend toward more aluminum in cars is -- in every discussions we have with the automakers is a secular trend. They need to lightweight and aluminum is the cost effective way to do that.

And especially, and on the European side where diesel was a very important play, you know, reducing emissions, getting diesel out of the fleet increases emissions of CO2, right? So there's another engine that fosters the development, the adoption of aluminum in automotive. So, I think all these expansions are needed. Now, when they come you know that it's not a smooth and easy ramp up anyway. But so on the face of it, you open a plant, you look at it and all of a sudden you got 100,000 tons more of capacity. So reality is the sellable capacity is not 100,000 tons right out of the gate. So the ramp-up is also helping to smooth the peaks in capacity versus a pretty steady increasing demand. So I think we're looking at a market that is going to be reasonably balanced plus or minus something for the next three, four years.

Karl Blunden -- Goldman Sachs -- Analyst

Great. All right. Thanks for the time. I appreciate it.

Jean-Marc Germain -- Chief Executive Officer

Sure.

Operator

Thank you. And we have a follow-up from Jeremy Kliewer from Deutsche Bank. You may begin.

Jeremy Kliewer -- Deutsche Bank -- Analyst

Hi. Just regarding your comment on limited pockets of weakness in the automotive industry. Was that referring to like particular regions or is it on models that you guys are exposed to?

Jean-Marc Germain -- Chief Executive Officer

Yes, no, it's more on -- so it's both in the US and Europe and it's on some models or OEMs on which we may have some or no exposure, right, some -- sorry some or limited exposure. But again we don't see that as having any impact in our guidance either short-term or long-term.

Jeremy Kliewer -- Deutsche Bank -- Analyst

Okay. And then on the decision to kind of reduce some of your contractual obligations on the packaging sheet, was that all on the end stock or was it both body sheet as well as the end stock sheet?

Jean-Marc Germain -- Chief Executive Officer

Both. Both, yeah.

Jeremy Kliewer -- Deutsche Bank -- Analyst

Both. All right. Thank you and good luck.

Jean-Marc Germain -- Chief Executive Officer

Thank you.

Peter Matt -- Executive Vice President and Chief Financial Officer

Thank you.

Jean-Marc Germain -- Chief Executive Officer

Well, thank you everyone. I think that concludes our call for today and our Q&A. Thank you again for your interest in Constellium. As you can tell we remain very optimistic about our prospects for 2019 and onwards. And we look forward to updating you on our Q2 numbers and performance in July. Thank you. Have a good day.

Operator

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

Duration: 59 minutes

Call participants:

Ryan Wentling -- Investor Relations

Jean-Marc Germain -- Chief Executive Officer

Peter Matt -- Executive Vice President and Chief Financial Officer

Curt Woodworth -- Credit Suisse -- Analyst

Jeremy Kliewer -- Deutsche Bank -- Analyst

Matthew Korn -- Goldman Sachs -- Analyst

Martin Englert -- Jefferies & Company -- Analyst

Piyush Sood -- Morgan Stanley & Co. -- Analyst

Christian Georges -- Societe Generale -- Analyst

Matthew Fields -- Bank of America Merrill Lynch -- Analyst

Sean Wondrack -- Deutsche Bank -- Analyst

Karl Blunden -- Goldman Sachs -- Analyst

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