Allegheny Technologies Announces First Quarter 2011 Results
04/28/2011 - Allegheny Technologies Inc. reported net income of $56.3 million on sales of $1.23 billion for the first quarter of 2011.
Allegheny Technologies Inc. reported net income of $56.3 million on sales of $1.23 billion for the first quarter of 2011.
First Quarter Results — The $56.3 million net income ($0.54 per share) compares to net income of $18.2 million ($0.18 per share) in the year-ago first quarter. Results included a special charge of $3.1 million, net of tax, related to the accelerated recognition of equity-based compensation expense due to executive retirements. Results also included a $2.7 million discrete tax charge primarily related to foreign income taxes. Excluding these charges, net income was $62.1 million ($0.59 per share)
Results for 2010 included a non-recurring tax charge of $5.3 million related to the Patient Protection and Affordable Care Act. Excluding this non-recurring tax charge, first quarter 2010 net income was $23.5 million ($0.24 per share).
Sales of $1.23 billion compare to sales of sales of $899.4 million.
Management Comments — “We continue to see 2011 marking the resumption of strong secular growth in our key global markets. We are off to a good start,” said L. Patrick Hassey, Chairman and CEO. “In the first quarter 2011, sales increased 36% compared to the same period in 2010 and shipments for most of our products increased significantly.”
“During the first quarter 2011, our key global markets, namely aerospace and defense, oil and gas/chemical process industry, electrical energy, and medical, represented 70% of ATI sales,” continued Hassey. “Direct international sales were nearly 32% of sales”.
Hassey also said the company continued to improve its cost structure through the first quarter, resulting in more than $26 million in gross cost reductions. He said the company’s gross cost reduction goal for 2011 is $100 million.
“First quarter 2011 segment operating profit increased nearly 85% to $162 million, or 13.2% of ATI sales,” continued Hassey. “Operating profit improved across all three business segments.” Hassey noted that results had been impacted by $9.8 million in idle facility and start-up costs for the company’s titanium sponge operations, which was $4 million higher than expected. Segment operating profit was also impacted by LIFO charges of $3.9 million, primarily due to higher titanium and tungsten raw material costs.
“Our key global markets remain strong,” said Hassey. “High Performance Metals segment backlog at the end of the first quarter 2011 was over $742 million, and is approaching levels reached in early 2007 and 2008. In addition, several large project wins in the oil and gas/chemical process industry provide a solid backlog for 2011 in our Flat-Rolled Products segment.
“Orders from the aerospace market continue to strengthen. We believe we are at the beginning of a significant aerospace up cycle. Major OEMs are telling their supply chains to get ready for production increases to unprecedented build rates by 2013 for both legacy and next-generation aircraft,” said Hassey. “With our expanded capacity and capabilities, ATI is ready to meet the expected ramp-up of demand from the airframe and jet engine supply chains.
“The oil and gas/chemical process industry market remains strong. At 23% of ATI sales, our sales to this market grew by 51% compared to the same period last year. ATI is seeing a step up in demand and has won supply agreements for major projects including CP titanium for the largest desalination plant ever built, nickel-based alloy plate for the largest sour gas pipeline ever built, and specialty sheet for a large subsea oil pipeline being built in Brazil.
“We are closely watching the impact on the electrical energy market as Japan recovers and rebuilds,” continued Hassey. “We expect global demand for grain-oriented electrical steel may begin to improve as the electrical distribution grid in the affected area is rebuilt. We believe Japan will rely more on natural gas power generation in the short term, which could positively impact ATI’s sales to the gas turbine market and to the markets for exploration, processing, and transportation of LNG (Liquefied Natural Gas). In addition, while the Fukushima Daiichi power plant incident has put licensing and construction of new nuclear power plants on hold until safety can be evaluated, we expect continued good demand from refueling and maintenance, and we believe the Generation III+ reactor design will receive more consideration. The incident also highlighted the need for countries to reevaluate their policies on spent nuclear fuel storage and processing. Many designs for spent fuel casks and transportation canisters use significant amounts of the specialty metals made by ATI.
“At 6% of first quarter 2011 sales, medical was again our fastest growing market. Sales to the medical market doubled compared to the first quarter 2010. Growth was driven by demand for titanium products used in biomedical applications, and demand for our products used in next-generation MRI devices and for expanded MRI sales into developing countries.
Outlook — “We expect to see higher base prices for most of our products going forward. In our Flat-Rolled Products segment two base-price increases have been announced for our nickel-based alloy and specialty alloy products and a base-price increase was announced for our standard stainless products. Base prices have also been improving for our High Performance Metals segment titanium alloy and nickel-based alloy and specialty alloys. In addition, base-prices are improving in our Engineered Products segment, particularly for our tungsten products and for our carbon steel alloy forgings.
“We continue to expect 2011 revenue growth of 15 to 20% compared to 2010, and continue to expect segment operating profit to be approximately 15% of sales for the year. Strength in our key markets, improving shipments and improving base prices for most products, and our ongoing focus on cost reduction and operating execution gives us confidence that these goals can be achieved.
Hassey noted that “Our outlook does not include any impact from our pending acquisition of Ladish Co., Inc.” He noted that the meeting of Ladish shareholders to consider the acquisition is scheduled for May 6, 2011. Assuming shareholder approval, the acquisition is expected to close shortly after the meeting.
Pending Acquisition of Ladish — Closing of the acquisition of Ladish is pending approval by Ladish shareholders at a shareholders meeting scheduled to be held on May 6, 2011. Merger consideration is comprised of $389 million in cash and approximately 7.4 million shares of ATI common stock. With closing of the acquisition, ATI will recognize non-recurring transaction costs of approximately $8 million, pretax.
Allegheny Technologies Inc. is one of the largest and most diversified specialty metals producers in the world with revenues of $4.0 billion during 2010. ATI’s major markets are aerospace and defense, chemical process industry/oil and gas, electrical energy, medical, automotive, food equipment and appliance, machine and cutting tools, and construction and mining, and its 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.
