Allegheny Technologies Announces 3ird Quarter Results
10/22/2009 - Allegheny Technologies reports net income of $1.4 million on sales of $697.6 million for the third quarter, and a net loss of $6.1 million on sales of $2.24 billion for the nine months ended September 30, 2009.
Allegheny Technologies Inc. reported net income of $1.4 million on sales of $697.6 million for the third quarter, and a net loss of $6.1 million on sales of $2.24 billion for the nine months ended September 30, 2009.
Third Quarter Results — The $1.4 million net income ($0.01 per share) compares to net income of $144.1 million ($1.45 per share) in the year-ago third quarter. Sales of $697.6 million represent a 50% decrease as compared to sales of $1.39 billion in the year-ago third quarter; the company said the drop was the result of significantly lower raw material surcharges and indices and lower shipments.
Direct international sales represented 31.0% of total sales, compared to 29% for the year-ago third quarter. Compared to the third quarter 2008, sales decreased 45% in the High Performance Metals segment, 52% in the Flat-Rolled Products segment, and 54% in the Engineered Products segment.
Segment operating profit was $54.0 million (7.7% of sales) compared to $251.4 million (18.1% of sales) for the year-ago third quarter. Results were negatively affected by lower shipments, idle facility, workforce reduction, and $18.9 million in start-up costs. These negative impacts were partially offset by a LIFO inventory valuation reserve benefit of $4.5 million.
The LIFO inventory valuation reserve benefit was $22.5 million lower than the LIFO reserve benefit recognized in the previous quarter due to rising raw material costs.
Nine Month Results — The $6.1 million net loss (($0.06) per share) compares to net income of $455.0 million ($4.51 per share) in the comparable year-ago period. Sales of $2.24 billion compare to sales of $4.20 billion for the comparable year-ago period.
Results included $17.0 million ($0.17 per share) in non-recurring after-tax charges related to second-quarter 2009 actions to retire debt and the tax consequences of the company’s $350-million voluntary pension contribution. Excluding special charges, net income would be $10.9 million ($0.11 per share).
Cash flow from operations, $149.4 million, benefited from a $344.8-million reduction in managed working capital due to lower business activity and raw material costs, partially offset by a voluntary net cash pension contribution of $241.5 million ($350 million contribution less $108.5 million federal income tax refund) in the second quarter 2009. Excluding the voluntary net cash pension contribution, cash flow from operations was $390.9 million for the first nine months of 2009.
Gross cost reductions, before the effects of inflation, totaled $121.4 million company-wide in the first nine months 2009. Cash on hand at the end of the third quarter 2009 was $826.3 million, an increase of $356.4 million from year-end 2008.
Management Comments — “Looking past the remainder of 2009, the worst appears to be behind us, and we remain confident in the intermediate and long-term growth potential of our core markets,” said L. Patrick Hassey, Chairman, President and CEO.
“We are having success in the marketplace by developing and expanding strategic relationships with key global customers, and we are well positioned to meet their growing needs as economic conditions improve and our core markets recover,” continued Hassey. “During the third quarter, we completed several new long-term agreements (LTAs) with key global customers. We are working on several more. These LTAs provide a foundation for future growth and position ATI with deep customer relationships in our core markets.
“ATI’s financial position is strong. Cash on hand was over $826 million at the end of the third quarter, and net debt to total capitalization was 10.5%. We achieved gross cost reductions of over $121 million in the first nine months, and expect to exceed our 2009 cost reduction goal of over $150 million. Our pension plan remains fully funded.
“Our investments in unsurpassed manufacturing capabilities are progressing,” continued Hassey. “Our new titanium and superalloy forging facility began operation in the third quarter and the start-up is going well. We now expect to begin production at our premium-grade titanium sponge facility before the end of 2009. By the end of October, we expect to close on the Crucible asset acquisition, which is an excellent entry point for ATI into advanced powder metal products. We now expect 2009 capital expenditures and asset acquisitions to be approximately $475 million, which includes the Crucible asset acquisition.
Outlook — “For the fourth quarter 2009 short-term outlook, we are seeing some positive data points in certain markets; however, many of our customers remain cautious due to the uncertain global economy and are keeping inventories low,” said Hassey. “This uncertainty is exaggerated by recent volatility in prices of raw materials, particularly nickel, which impacts customer buying patterns from month to month and at year-end. As a result of these conditions, and expected new facility start-up and other costs, we expect ATI’s fourth-quarter 2009 earnings performance to be similar to that achieved in the third quarter 2009.
“Looking ahead, we expect our operating earnings performance to improve throughout 2010 as compared to 2009. We believe 2010 to be a transition year to the next growth cycle in most of our markets, particularly the aerospace and global infrastructure markets.
“Although we expect only a modest economic recovery in 2010, we are focused on continuing to position ATI in targeted global markets. We expect to benefit greater than the recovery and growth in our core markets in 2010 and beyond by improving our position with key customers, adding new products to our unique specialty metals portfolio, improving our cost structure, maintaining our financial flexibility, and bringing on-line new world-class manufacturing capabilities.”
Allegheny Technologies is one of the largest and most diversified specialty metals producers in the world with revenues of $5.3 billion during 2008. In addition to grain-oriented electrical steel, stainless and specialty steels, the company’s products also include titanium and titanium alloys, nickel-based alloys and superalloys, zirconium, hafnium, and niobium, tungsten materials, and forgings and castings.
