What Befesa (BFSA) Said on Its Q3 Earnings Call

Key Points

• Befesa raised its 2026 adjusted EBITDA outlook to €260 million–€270 million excluding the U.S. tax credit, or €286 million–€296 million including an estimated €26 million Section 45X benefit. Adjusted EBITDA rose 10% year over year to €192 million in the first nine months.
• The company filed for the U.S. Inflation Reduction Act’s Section 45X credit for high-grade zinc produced at its Mooresboro plant. Befesa expects the credit to add $25 million–$30 million annually to adjusted EBITDA, with the first cash payment anticipated in the first half of 2027.
• Financial performance and balance-sheet metrics improved: aluminum-segment EBITDA jumped 52%, net debt fell to €564 million, and leverage declined to 2.16 times. Management expects leverage near 1.8 times by year-end and plans to consider additional shareholder returns from excess cash starting in 2027.

Befesa ETR: BFSA reported higher earnings for the first nine months of 2026 and raised the lower end of its operating adjusted EBITDA guidance, while also outlining an expected benefit from a U.S. Inflation Reduction Act production credit.

Management said adjusted EBITDA for the first nine months rose 10% year over year to EUR192 million. Third-quarter adjusted EBITDA margin increased to 22% from 21% a year earlier, while net income and earnings per share rose 12% year over year, according to the company.

The company now expects 2026 adjusted EBITDA of EUR260 million to EUR270 million excluding the potential benefit from Section 45X of the Inflation Reduction Act. Including an estimated EUR26 million contribution related to the credit for fiscal 2026, Befesa guided for adjusted EBITDA of EUR286 million to EUR296 million.

U.S. tax-credit filing

Chief Executive Officer Asier Zarraonandia said Befesa had filed a claim with the U.S. Internal Revenue Service for a Section 45X advanced manufacturing production credit covering 2025. The credit applies to production of special high-grade zinc, with purity above 99.9%, at the company’s Mooresboro zinc refining plant.

The credit is worth 10% of the operating cost of producing the eligible zinc, management said, and does not require additional capital investment to qualify in future periods. Befesa expects the program to contribute $25 million to $30 million annually to adjusted EBITDA over its nine-year duration, with the benefit stepping down from 2031 through 2033.

Approximately EUR26 million related to the 2026 fiscal year is expected to be recorded in fourth-quarter adjusted EBITDA. However, the company does not expect associated cash proceeds in 2026, with the first cash payment expected in the first half of 2027. CFO Rafael Pérez said payments are expected annually thereafter under the program.

Zarraonandia said the company has “very high” confidence in the claim following work with tax advisers, while noting that filings remain subject to review by U.S. authorities and future legislative changes cannot be ruled out.

Steel Dust volumes and zinc prices

The Steel Dust segment generated EUR158 million in adjusted EBITDA during the first nine months, up 2%, or EUR4 million, from the prior-year period. The segment’s EBITDA margin improved to 27% from 26%.

Waelz volumes declined 3%, reducing EBITDA by EUR4 million, Pérez said. The decline reflected maintenance activity and challenging markets in the third quarter, while the comparable period in 2025 had unusually high volumes. Higher zinc prices provided a EUR22 million favorable contribution, although foreign exchange, energy costs and inflation created headwinds.

In Europe, Befesa cited weak construction activity, continued softness in automotive markets and higher electricity prices as factors weighing on steel production. Still, its European operations reached a 90% load factor, up 2 percentage points year over year.

U.S. volumes were supported by steel demand linked to data centers, energy infrastructure and industrial projects. Zarraonandia said the company still expects U.S. steel-dust volumes to rise by 60,000 to 70,000 metric tons in 2026, followed by a further increase of about 50,000 tons in 2027 as new contracts contribute. Asia remained challenging, with lower volumes in Turkey and Korea and low utilization in China.

For the full year, Befesa expects total steel-dust volumes to be similar to or slightly above 2025 levels. Management expects fourth-quarter volumes to be modestly above the prior-year fourth quarter.

The average London Metal Exchange zinc price rose 27% year over year to $3,512 per ton in the first nine months, and climbed 36% to $3,830 per ton in the third quarter. Pérez said zinc concentrate supply remained tight and inventories were exceptionally low. Befesa has extended its hedging program through the third quarter of 2029, with average hedge prices of $3,000 per ton for 2027, $3,100 for 2028 and $3,200 for the first nine months of 2029.

Aluminum business improves

Adjusted EBITDA in Befesa’s aluminum segment rose 52% year over year to EUR34 million. The company attributed the improvement to a better pricing and margin environment, particularly in secondary aluminum.

Salt slags revenue increased 10% to EUR93 million despite slightly lower volumes, while EBITDA rose 25% to EUR29 million. The segment’s EBITDA margin expanded by 370 basis points to 31%. Zarraonandia said improved collection fees and higher aluminum prices helped results.

Secondary aluminum revenue rose 3% to EUR268 million, though production volumes declined 6% because of tight scrap availability and maintenance-related stoppages. The business moved to positive EBITDA of EUR5.4 million from a EUR0.6 million loss a year earlier, helped by a significant improvement in metal margins. Management said market conditions remain difficult because of constrained scrap feedstock in Europe.

The Bernburg expansion completed hot commissioning at the end of September, and Befesa is ramping production. Management expects the project to begin contributing after the ramp-up phase, with Zarraonandia identifying about EUR6 million of EBITDA as a reference point for 2027, subject to scrap availability.

Cash flow, leverage and capital allocation

Operating cash flow rose 11% to EUR128 million in the first nine months. Capital expenditures totaled EUR60 million, including spending on the Bernburg expansion, and Befesa maintained full-year CapEx guidance of about EUR70 million.

Cash on hand stood at EUR126 million at the end of September, alongside a fully undrawn EUR100 million revolving credit facility. Net debt was EUR564 million, down from EUR610 million a year earlier, and net leverage fell to 2.16 times from 2.6 times.

Befesa expects leverage to improve to around 1.8 times by year-end, including the Section 45X contribution. Pérez said the company expects to reach its target leverage range of 1.5 times to 2 times during the fourth quarter.

Management said excess cash after maintenance spending, dividends, balance-sheet targets and high-return growth investments would be returned to shareholders through buybacks or special dividends. Befesa expects 2027 to be the first year in which it deploys excess cash for additional shareholder remuneration. The company’s only identified growth project is a potential expansion at its Recytech steel-dust recycling plant in France, estimated to require EUR60 million to EUR70 million over two years if European volume growth provides sufficient visibility.

About Befesa (ETR:BFSA)

Befesa SA offers environmental recycling services to the steel and aluminum industries in European, Asian, and North American markets. It operates through two segments, Steel Dust Recycling Services and Aluminium Salt Slags Recycling Services. The Steel Dust Recycling Services segment collects and recycles crude steel dust and other steel residues generated in the production of crude, stainless, and galvanized steel; sells waelz oxide to zinc smelters; and treats crude steel dust. The Aluminium Salt Slags Recycling Services segment recycles salt slags; spent pot linings, a hazardous residue generated by primary aluminium producers; and recovers and sells salt, aluminium concentrate, and aluminium oxides.

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