Allegheny Technologies Reports 1st Quarter 2009 Results
04/23/2009 - Allegheny Technologies reports net income attributable to ATI common stockholders of $5.9 million on sales of $831.6 million for the first quarter of 2009.
Allegheny Technologies Inc. reported net income attributable to ATI common stockholders of $5.9 million on sales of $831.6 million for the first quarter of 2009.
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ATI’s Flat-Rolled Products Segment
The company said that demand for certain high-value products, such as grain-oriented electrical steel and industrial titanium products, was at reasonably good levels relative to economic conditions. Demand for most of the company’s stainless products, however, was weak particularly from consumer markets such as automotive, appliance, and residential construction.
First quarter sales for this segment were $378.2 million, 49% lower than the first quarter 2008. Shipments of standard stainless products decreased 40% while high-value products shipments declined 22%. Average transaction prices for all products, which include surcharges, were 25% lower due to a combination of reduced raw material surcharges and lower base prices for most products due to a more competitive pricing environment.
Segment operating profit decreased to $7.7 million (2.0% of sales), compared to $102.9 million (13.8% of sales) for the 2008 period. The decline in operating profit primarily resulted from lower shipments and average base selling prices for most of the company’s products plus the negative impact from $48 million of higher-cost material purchased in 2008. (This mismatch between raw materials costs and raw materials surcharges was due primarily to rapid decreases in raw material costs and the long manufacturing times of some of the company’s products.) These negative impacts were partially offset by a $26.2 million decrease in the LIFO inventory valuation reserve and the benefits of gross cost reductions. There was no change in the company’s LIFO inventory valuation reserve in the first quarter 2008.
Results benefited from $12.1 million in gross cost reductions.
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“While we will never be satisfied with being marginally profitable, our ability to generate positive results in the first quarter demonstrates the ongoing transformation of ATI into a uniquely positioned, globally-focused diversified specialty metals company,” said L. Patrick Hassey, Chairman, President and CEO. “ATI remained profitable and continued to generate positive cash flow in spite of the most challenging global economic conditions we have ever seen and a significant negative impact from out-of-phase raw material surcharges and indices.
Hassey said that the company continued to make progress on consolidation of its Brackenridge, Pa., specialty meltshop. “We expect cost savings from this project to begin in late 2010,” added Hassey. “Engineering, permitting, and site preparation continues on our Brackenridge, Pa, hot rolling and processing center. We now expect 2009 self-funded capital investments to be in the range of $425 million to $450 million.”
Looking forward to the second quarter, Hassey said the company remains cautious. “While we see some signs of stabilization in certain markets due to low inventory in the supply chain, demand for many products remains at a very low level, the pricing environment is challenging, and visibility is limited,” noted Hassey. He added that the aerospace supply chain likely need to further adjust to recently announced commercial aircraft production plans and reduced aftermarket demand, and that second quarter 2009 segment operating profit would likely be negatively impacted by approximately $20 million from out-of-phase surcharges and indices.
“Considering all the above, we expect ATI’s second quarter 2009 earnings to be modestly better than the first quarter 2009,” said Hassey. “In addition, we expect to end the second quarter 2009 with a significant amount of cash on hand while continuing to self fund our capital investments.
“We remain confident in the long-term growth potential of our core aerospace and infrastructure markets that have been driving ATI’s performance. We intend to use the current difficult market conditions to continue to positively differentiate ATI as a uniquely positioned, diversified, technology-driven global specialty metals company with unsurpassed manufacturing capabilities. Our strategic direction and vision remain intact.”
First Quarter 2009 Financial Results—Sales of $831.6 million were 38% lower than the first quarter 2008 due primarily to lower selling prices and shipments. Direct international sales represented 29.4% of the total, compared to 27.6% for the year-ago first quarter. Compared to the first quarter 2008, sales decreased 19% in the High Performance Metals segment, 49% in the Flat-Rolled Products segment, and 43% in the Engineered Products segment.
Segment operating profit of $55.9 million (6.7% percent of sales) compares to segment operating profit of $240.0 million (17.9% of sales) for the first quarter of 2008. Hassey noted that results were negatively impacted by approximately $65 million in out-of-phase raw material surcharges and indices due primarily to the rapid decrease in the cost of most raw materials in the second half of the fourth quarter 2008. This was partially offset by a LIFO inventory valuation reserve benefit of $27.5 million. The first quarter 2008 included a LIFO inventory valuation reserve charge of $1.3 million.
Results were also negatively impacted by global economic conditions and higher retirement benefit costs of $23.7 million (net of tax) resulting from the significant decline in 2008 of the equity and fixed income markets and the resulting impact on the retirement plan asset valuations.
Cash flow from operations ($168.9 million) benefited from a $216.2 million reduction in managed working capital due to lower business activity and raw material costs. Cash on hand increased $36.1 million from 2008 year-end to $506.0 million at the end of the first quarter 2009.
Gross cost reductions, before the effects of inflation, totaled $34.8 million for the first three months of 2009.
Allegheny Technologies is one of the largest and most diversified specialty metals producers in the world with revenues of $5.3 billion during 2008. 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. 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.
