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Allegheny Technologies Reports 2nd Quarter Earnings
07/26/2007 - Allegheny Technologies Inc. reported net income of $206.5 million on sales of $1.47 billion for the second quarter, and net income of $404.3 million on sales of $2.84 billion for the six months ended June 30, 2007.
Allegheny Technologies Inc. reported net income of $206.5 million on sales of $1.47 billion for the second quarter, and net income of $404.3 million on sales of $2.84 billion for the six months ended June 30, 2007.
Second Quarter Results—The $206.5-million net income ($2.00 per share) compares to net income of $144.3 million ($1.41 per share) in the second quarter 2006. Sales of $1.47 billion compare to sales of $1.21 billion in the second quarter 2006.
Six Month Results—The $404.3-million net income ($3.93 per share) compares to net income of $250.8 million ($2.46 per share) for the comparable year-ago period. Sales of $2.84 billion compare to sales of $2.25 billion for the comparable year-ago period.
Management Comments—“ATI’s diversified global markets, broad product offerings, and operational execution delivered another quarter of double digit sales and earnings growth,” said L. Patrick Hassey, Chairman, President and CEO. “Over 63% of year-to-date sales were generated by our key growth markets—namely aerospace and defense, chemical process industry, oil and gas, and electrical energy. These key markets remain strong. We saw the benefits of our strategic growth initiatives, as total shipments of ATI’s titanium and titanium alloy products were 8.8 million pounds in the second quarter, nearly 14% higher than the second quarter 2006.
“In our High Performance Metals segment, sales were over $557 million and operating profit was over 32% of sales. Sales of our premium titanium alloys and nickel-based superalloys remained strong to jet engine customers, for both OEM applications and spare parts. Sales of our titanium alloys to airframe customers continued to grow. High Performance Metals segment titanium product shipments in the second quarter 2007 were 16% higher than the second quarter 2006, and 10% higher than the first quarter 2007. Part of this increase is due to the expanding use of titanium in airframes. Specifically, in the second quarter 2007 sales of our titanium alloys to airframe customers were 43% higher than the first quarter 2007 and more than four times higher than the second quarter 2006. Looking at our nickel-based alloys and superalloys and specialty alloys, segment shipments were 6% higher than the second quarter 2006 and 14% higher than the first quarter 2007 driven largely by increased demand from the jet engine market.
“We think we have good visibility into the demand from the aerospace market, and we believe ATI is very well positioned to benefit from exciting growth prospects in this market for many years.
“In addition, our exotic alloys shipments grew by nearly 40% compared to last year’s second quarter, primarily due to demand from the chemical process industry and electrical energy markets.
“Our Flat-Rolled Products segment has been transformed into a highly profitable diversified specialty metals business. The magnitude of this transformation continued in the second quarter 2007 as sales were approximately $805 million and operating profit reached a record $166 million, or nearly 21% of sales, even while total shipments were comparatively low. Sales of our specialty and titanium sheet, specialty plate, and grain-oriented silicon electrical steel were all strong. In addition, substitution to lower nickel-bearing alloys continued to accelerate. However, many customers were cautious due to volatile raw materials prices, particularly for nickel, and the resulting high surcharges in the second quarter. This resulted in weak demand throughout the quarter for many stainless steel products.
“Here are some points to consider about the transformation of our Flat-Rolled Products segment. Productivity has improved by over 40% since 2004. Gross cost reductions totaled nearly $300 million during the same period. New capital investments are paying off with improved productivity and reduced costs. In addition, we decoupled product pricing, and are more focused on key global growth markets, specifically chemical process industry, oil and gas, electrical energy, and aerospace and defense, which together accounted for nearly 50% of year-to-date segment sales.
“Turning to our Engineered Products segment, operating profit was lower than the level we expect. Results in the tungsten products business were negatively impacted by the slower than planned ramp up of the use of ore in producing APT (ammonium paratungstate) in our newly expanded APT plant. This forced us to consume more scrap in the production of APT, which drove scrap material costs higher than expected in the quarter. This higher cost inventory will carry well into the third quarter. While we are now self-sufficient for our APT needs, including the flexibility to use either tungsten ore or scrap to produce APT, we don’t expect to see the cost benefits of this capability until the fourth quarter 2007.
Outlook—“Looking ahead, we expect ATI’s overall performance in the second half 2007 to be at least as good as that achieved in the first half 2007, with fourth-quarter earnings stronger than third-quarter earnings. We expect the third quarter to reflect higher costs of approximately $0.07 to $0.09 per share associated with scheduled major maintenance outages at several plants. The second half 2007 outlook could be impacted by continued volatility in raw materials costs.”
In concluding his remarks, Mr. Hassey said, “Our key growth markets remain strong, and we are well positioned to benefit from these markets. ATI’s strategic capital projects remain on track and are expected to contribute significant growth with very good returns. We are in the process of replacing our existing $325-million secured domestic revolving credit facility with a new $400-million unsecured domestic revolving credit facility. We are pleased that this new credit facility has been extremely well received by our bank group. The new facility should be in place by the end of July.
“In our High Performance Metals segment, titanium alloy shipments under long-term agreements are expected to continue to grow with the robust aerospace build rate. We also expect key growth markets in our Flat-Rolled Products segment to remain strong in 2007. Flat-rolled products orders and shipments should improve once the price of nickel stabilizes.”
Allegheny Technologies is one of the largest and most diversified specialty metals producers in the world with revenues of $5.5 billion during the most recent four quarters ending June 30, 2007. ATI has approximately 9,500 full-time employees world-wide, and its 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, stainless and specialty steels, zirconium, hafnium, and niobium, tungsten materials, grain-oriented silicon electrical steel and tool steels, and forgings and castings.
