Pittsburgh, Pa.-based Allegheny Technologies Inc. reported net income for the third quarter 2012 of $35.3 million on sales of $1.22 billion. In the third quarter 2011, ATI reported net income of $62.3 million on sales of $1.35 billion.

For the nine months ended 30 September 2012, net income was $147.9 million,on sales of $3.93 billion. For the nine months ended 30 September 2011, net income was $182.6 million on sales of $3.93 billion.

"Continuing uncertainty regarding global economic conditions impacted our third quarter 2012 results," said Rich Harshman, Chairman, President and Chief Executive Officer. "We are seeing conservative inventory management throughout the supply chains of most of our major end markets. These actions appear to be driven by concerns about the U.S. election and resolution of the U.S. ‘fiscal cliff’, and uncertain economic trends in China, Europe, and Japan.

"We believe that as these uncertainties begin to be resolved, demand will improve for our GDP-sensitive products and strong secular growth trends will resume in our key global markets. We are not waiting for resolution of these macroeconomic issues. We continue to improve our cost structure and execute our strategies to enhance our competitive position by completing our strategic capital investments, introducing and qualifying innovative new products, improving our position with existing customers, and growing our participation at new customers."

ATI’s sales to the key global markets of aerospace and defense, oil and gas/chemical process industry, electrical energy, and medical represented 68% of ATI sales for the first nine months of 2012:

• Sales to the aerospace and defense market were $1.25 billion and represented 32% of ATI sales.
• Sales to the oil and gas/chemical process industry were $769 million and represented 20% of ATI sales.
• Sales to the electrical energy market were $464 million and represented 12% of ATI sales.
• Sales to the medical market were $166 million and represented 4% of ATI sales.

Direct international sales were $1.4 billion for the first nine months of 2012 and represented nearly 36% of ATI sales.

"The current economic conditions have resulted in softening of demand from the jet engine aftermarket and a cautious approach to managing inventory in the supply chains of both airframe and jet engine OEMs," said Mr. Harshman. "In spite of these short-term headwinds, we see strong growth in demand for our products from the commercial aerospace market over the next 3 to 5 years. OEM backlogs remain at record levels and announced production rate ramps remain on schedule. The new airframe designs and the new jet engines that meet the need for improved energy and environmental efficiency are demand drivers for ATI’s differentiated products.

"Although inventory is also being conservatively managed in the supply chain, we continue to see long-term growth opportunities from the oil and gas/chemical process industry markets. Our downhole oil and gas products remain in high demand because directional and horizontal drilling rates are holding up even as the total rig count is declining. In the third quarter 2012, we saw a pause in demand from oil and gas projects that use our flat-rolled products. Inquiry activity for flowlines and vessels made of our high-value flat-rolled products is beginning to increase for both new and replacement projects. In the chemical process industry, demand for our titanium products, while weak for the first nine months of 2012, is showing signs of improvement which we expect will result in increased shipments to this market in the first half of 2013. Our Uniti titanium joint venture received the first phase of an order related to a major desalination project but the related shipments for this phase and anticipated additional volume are expected to occur mainly in 2013.

"Demand from the electrical energy market was essentially flat in the third quarter compared to the second quarter 2012. On the power generation side, demand for our zirconium products from the nuclear energy market remains at low levels. Demand for industrial gas turbines was stable at relatively moderate levels. On the power distribution side, demand for grain-oriented electrical steel (GOES) continued to be impacted by the weak domestic housing construction market. The domestic specialty metals industry association recently confirmed that GOES imports into the U.S. market are surging, and possible dumping and below-cost sales from producers in a number of foreign countries have occurred in the United States.

"Demand remained strong from the medical market for our premium products for both surgical implants and MRI superconducting magnets.

"We expect demand for standard stainless steel sheet and plate to continue at low levels in the fourth quarter as a result of weak GDP growth in the U.S. and aggressive inventory management actions throughout the supply chain. In addition, base prices for most grades of standard stainless products are at historically low levels due to weak demand and high levels of Asian imports. We believe inventory levels of these products throughout the supply chains are lean and base prices are at unsustainable levels. Therefore, our view is that as global economic conditions begin to improve, both demand and base prices will begin to improve.

"Our financial position remains solid with cash on hand of $281 million at the end of the third quarter 2012. Cash provided by operations was $186 million in the third quarter 2012. We have reduced our expected 2012 capital expenditures to $410 million from our original $485 million plan. Our focus on improving our cost structure continued as gross cost reductions before the effects of inflation totaled $87 million during the first nine months 2012, which is on track to exceed our full-year objective of at least $100 million in gross cost reductions."

Strategy and Outlook
"We remain focused on long-term value creation for our stockholders, through the business cycles, while delivering superior value for our customers," Mr. Harshman said. "Our industry-leading specialty metals technologies, diversified alloy systems and product forms, global and diversified market focus, unsurpassed manufacturing capabilities, and integrated capabilities from alloy development, to raw materials (titanium sponge), to melting and hot-working, to finished value-added components and parts are unique in the world. This strategy has ATI well-positioned to achieve significant revenue and earnings growth over the next three to five years, as global economic conditions improve.

"We expect business conditions in the fourth quarter 2012 to remain challenging. Except for the U.S. election, meaningful progress on the primary reasons for the current global economic uncertainty - the possible U.S. ‘fiscal cliff’, the euro-zone debt crisis, and slower growth in China - is not expected until the first half of 2013. Therefore, we expect continued soft demand and aggressive inventory management by most of our customers to persist through the fourth quarter 2012. As a result, we now expect fourth quarter results to be lower than the 2012 third quarter. For the full year, we expect sales in the range of $5.0 to $5.1 billion and full-year segment operating profit as a percent of sales of approximately 10.5%."