Allegheny Technologies Announces 4th Quarter, Full-Year 2010 Results
01/27/2011 - Allegheny Technologies Inc. reported net income of $15.1 million on sales of $1.04 billion for the fourth quarter and net income of $70.7 million on sales of $4.05 billion for the full year 2010.
Allegheny Technologies Inc. reported net income of $15.1 million on sales of $1.04 billion for the fourth quarter and net income of $70.7 million on sales of $4.05 billion for the full year 2010.
Fourth Quarter Results — The $15.1 million fourth-quarter net income ($0.15 per share) compares to net income of $37.8 million ($0.36 per share) in the year-ago fourth quarter. Sales of $1.04 billion compare to on sales of $815.7 million in the year-ago fourth quarter.
Results were impacted by a $19.5 million LIFO inventory valuation reserve charge and $20.4 million in start-up and idle facility costs, which reduced earnings by $0.26 per share. Last year’s (4Q 2009) results benefited from a $43.8 million reduction in the LIFO reserve but were adversely affected by start-up and idle facility costs of $13.5 million.
Full Year Results — The $70.7 million full-year net income ($0.72 per share) compares to net income of $31.7 million ($0.32 per share) in 2009. Sales of $4.05 billion compare to sales of $3.05 billion in 2009.
Results included $9.2 million of non-recurring tax charges ($0.10 per share), primarily due to the effects of the Patient Protection and Affordable Care Act and the Small Business Jobs and Credit Act. Results were also impacted by $60.2 million in LIFO charges primarily due to continued increases in raw material costs, and by $62.4 million of start-up and idle facility costs.
Results for 2009 included $17.0 million of non-recurring after-tax charges ($0.17 per share) related to actions to retire debt and the tax consequences of the company’s $350-million voluntary pension contribution. 2009 results also benefited from a $102.8 million reduction in the LIFO reserve, which more than offset $47.9 million of start-up and idle facility costs.
“Sales for 2010 increased by approximately 33% compared to 2009. We view 2010 as the transition year to the resumption of strong secular growth in our key global markets beginning in 2011,” said L. Patrick Hassey, Chairman and CEO.
The company noted that shipments for most products recovered from low levels in 2009.
Management Comments — “During 2010, our key global markets, namely aerospace and defense, oil and gas/chemical process industry, electrical energy, and medical, represented over 67% of ATI sales. Direct international sales were nearly 32% of sales,” said Hassey.
“We generated cash from operating profits in 2010 and have built the working capital necessary to meet increasing demand while modernizing our facilities to significantly improve production efficiencies and capabilities. In addition, our cost structure improved with over $135 million in gross cost reductions. We continued to maintain a strong balance sheet with cash-on-hand of $432 million at the end of the year.
“Segment operating profit for 2010 was $356 million, a 26% increase over 2009. This was accomplished with a $60 million LIFO charge compared to a $103 million benefit in 2009. In addition, start-up and idle-facility costs in 2010 were over $62 million, $6 million higher than in 2009.
“In the fourth quarter 2010, the LIFO inventory valuation reserve charge was $6 million higher than expected primarily due to higher raw material costs. Start-up costs at our Rowley, Utah, titanium sponge facility were $5 million higher than expected due to production delays. In addition, corporate expenses for the 2010 fourth quarter were $10 million higher than the previous quarter primarily due to corporate-funded R&D, costs associated with the planned acquisition of Ladish Co., Inc., and incentive compensation expenses.
“Our Rowley facility is producing titanium sponge, although at a lower volume than we had targeted. While we are very pleased with the sponge chemistry, which is meeting premium-grade specifications, we remain focused on further reducing variability, standardizing the process, and improving yields. We are implementing an orderly ramp up and expect to be producing at a 20 million pound annual rate by the second half 2011.
“Our acquisition of Ladish is progressing, and we continue to expect to complete the transaction in the first quarter 2011. As previously announced, the review period has expired under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. In addition, antitrust approval was recently received from officials in Germany.”
2011 Outlook — “As we begin 2011, our key global markets are showing signs of strong growth,” Hassey continued.
“We expect to see higher base prices for most of our high-value products during 2011. For example, we recently announced two price increases for certain nickel-based alloys and specialty alloys in flat-rolled product forms, and also increased prices for these alloys in long product forms. In addition, Uniti, our industrial titanium joint venture, recently announced that it is increasing prices for its CP titanium products.
“As the U.S. economy continues to recover in 2011, we believe demand will increase for our standard stainless sheet and plate products. Our customers are closely watching price trends in raw materials as surcharges can affect the timing of their purchasing decisions.
“We expect 2011 earnings to be much improved, compared to 2010, as demand for most of our products strengthens throughout the year and we realize the benefits of our cost reductions and much lower start-up costs,” continued Hassey. “In addition, we expect to grow faster than our key markets as a result of new customers and LTAs, the growing use of our innovative new products, our new technically advanced manufacturing capabilities, and a global focus on our key markets. Looking at the global markets for our titanium products, we expect 2011 total titanium shipments to increase by approximately 30% to 50 million pounds.
“In total, we expect 2011 revenue growth of 15% to 20% compared to 2010, and expect segment operating profit to be approximately 15% of sales,” said Hassey. “We have targeted a minimum of $100 million in new gross cost reductions. In addition, we expect retirement benefit expense to be approximately $13 million lower in 2011 as better-than-expected investment returns on plan assets during 2010 offset the use of a lower discount rate to value benefit obligations at year-end. ATI’s U.S. defined benefit pension plan was fully funded at the end of 2010. Capital expenditures are forecasted at $300 to $350 million. These comments do not include any impact from our pending acquisition of Ladish.”
Allegheny Technologies is one of the largest and most diversified specialty metals producers in the world with revenues of $4.0 billion during 2010. ATI has approximately 9200 full-time employees worldwide, and its major markets are aerospace and defense, oil and gas/chemical process industry, electrical energy, medical, automotive, food equipment and appliance, machine and cutting tools, and construction and mining. Products include titanium and titanium alloys, nickel-based alloys and superalloys, grain-oriented electrical steel, stainless and specialty steels, zirconium, hafnium, and niobium, tungsten materials, and forgings and castings.
