Allegheny Technologies Announces Third Quarter 2011 Results
10/27/2011 - Allegheny Technologies reported net income of $62.3 million on sales of $1.35 billion for the third quarter, and net income of $182.6 million on sales of $3.93 billion for the first nine months of 2011.
Allegheny Technologies Inc. reported net income of $62.3 million on sales of $1.35 billion for the third quarter, and net income of $182.6 million on sales of $3.93 billion for the first nine months of 2011.
Third Quarter Results — The $62.3 million ($0.56 per share) third-quarter net income for the third quarter compares to net income of $1.0 million ($0.01 per share) for the year-ago third quarter, while sales of $1.35 billion compare to sales of $1.06 billion for the year-ago third quarter. Results included acquisition-related expenses of $8.3 million, net of tax, primarily related to inventory fair value adjustments. Excluding these items, net income was $70.6 million ($0.63 per share). Year-ago results included a tax charge of $0.04 per share.
Nine Month Results — Nine-month net income of $182.6 million ( $1.68 per share), compares to net income of $55.6 million ($0.56 per share) for the comparable year-ago period, while sales of $3.93 billion compares to sales of $3.01 billion in the year-ago period. Results included $26.8 million ($0.24 per share) of special items, including
· $21.0 million, net of tax, in Ladish acquisition-related expenses
· $3.1 million, net of tax, related to the accelerated recognition of equity-based compensation expense due to executive retirements
· A discrete tax charge of $2.7 million primarily related to foreign income taxes.
Excluding these special items, net income was $209.4 million ($1.92 per share) for the first nine months of 2011.
Results for the year-ago period included non-recurring tax charges of $9.2 million. Excluding these non-recurring tax charges, last year’s nine-month net income was $64.8 million ($0.66 per share).
Management Comments — “Our third quarter and year-to-date 2011 results during a time of global economic uncertainty demonstrates the benefits of ATI’s recent strategic investments and focus on key global markets and high-value differentiated products,” said Rich Harshman, Chairman, President and CEO. “Third quarter 2011 sales were 28% higher than the third quarter 2010, and year-to-date 2011 sales were nearly 31% higher than for the same period of 2010.
“Segment operating profit for the first nine months of 2011, excluding inventory fair-value adjustments associated with the Ladish transaction, was $523 million, or 13% of ATI sales, which was within our expected range,” continued Harshman. “This performance represents a 95% increase over the nine months 2010 segment operating profit. In addition, net income, excluding special items, for the first nine months of 2011 more than tripled compared to the same period 2010.”
Regarding the company’s Flat-Rolled Products segment, Harshman noted that operating profit declined from the previous quarter due to lower demand for most products, increased major maintenance charges of $6 million, and the impact of higher-cost raw material purchased in earlier periods, all of which were partially offset by a LIFO benefit.
“We continued to improve our cost structure with nearly $29 million in gross cost reductions in the third quarter, bringing our year-to-date total gross cost reductions to over $87 million,” continued Harshman. “We expect to exceed our 2011 gross cost reduction goal of $100 million. Our balance sheet remains strong with cash on-hand of over $430 million and net debt to total capitalization of about 30% at the end of September.
Harshman also noted that the company has begun foundation construction at its Flat-Rolled Products segment Hot-Rolling and Processing Facility. This project is expected to be completed by the end of 2013, and 2011 capital expenditures are expected to be approximately $275 to $300 million.
Outlook — “Our focus is to continue to deliver quality growth in the future,” said Harshman. “Over the next three to five years, demand drivers are expected to remain positive in our key global markets of aerospace, oil and gas/chemical process industry, electrical energy, and medical. However, concerns about U.S. and European economies and continued high unemployment levels appear to be negatively impacting short-term consumer and business confidence. This is clearly evident in the more short-cycle GDP-sensitive markets for products like our standard stainless sheet and plate. Demand for our standard stainless products is also negatively impacted by rapidly falling raw material surcharges resulting in customers delaying purchases and managing inventory levels. In addition, these same factors appear to be influencing short-term demand for some of our high-value products from some of our key end markets as many customers are being cautious and keeping inventories lean as we approach year end.
“As a result of these conditions, we now expect 2011 revenues of approximately $5.2 billion and segment operating profit as a percent of revenues in the range of the nine months year-to-date level.
“Although caution exists in the short term, the intermediate and long-term secular growth trends in our key global markets remain in place,” continued Harshman. “We expect demand to be strong in 2012 for our titanium-based alloy, nickel-based alloy and superalloy, and specialty alloy mill products and our highly engineered forgings and castings from the aerospace market. Commercial airframe OEMs have record backlogs and have announced unprecedented production rate ramps through 2014. In addition, ATI benefits from the secular shift to new titanium-intensive airframes, new energy efficient engines, and an expanding aftermarket. Strong growth in demand for many of our products is expected to continue in 2012 from the oil and gas/chemical process industry. Global demand is also expected to grow considerably from the electrical energy market driven by increased need for natural gas turbines, nuclear applications, alternative energy applications, and from the building and rebuilding of transmission infrastructure. Medical market demand for our titanium, zirconium, specialty, and niobium alloys is expected to continue to grow significantly. In addition, we expect business conditions to improve in 2012 for our standard stainless products as inventory levels appear in line and we expect end-market demand to recover.”
Allegheny Technologies is one of the largest and most diversified specialty metals producers in the world with revenues of approximately $5.0 billion for the last twelve months and approximately 11,300 full-time employees world-wide. The company’s products include titanium and titanium alloys, nickel-based alloys and superalloys, grain-oriented electrical steel, stainless and specialty steels, zirconium, hafnium, niobium, tungsten materials, forgings, castings, and fabrication and machining capabilities.
