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Allegheny Technologies Reports 3rd Quarter Earnings
10/25/2007 - Allegheny Technologies reports net income of $193.9 million on sales of $1.33 billion for the third quarter, and net income of $598.2 million on sales of $4.18 billion for the first nine months of 2007.
Allegheny Technologies Inc. reported net income of $193.9 million on sales of $1.33 billion for the third quarter, and net income of $598.2 million on sales of $4.18 billion for the first nine months of 2007.
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A Closer Look at ATI’s Flat-Rolled Products Segment
Market Conditions—Demand was strong for specialty and titanium sheet, and grain-oriented silicon electrical products from the chemical process industry, oil and gas, electrical energy, and aerospace and defense markets. Demand for standard stainless sheet products was extraordinarily weak primarily due to ongoing U.S. and European service center customers’ destocking actions.
Quarter-to-Quarter Comparison—Sales were $709.2 million, 3% lower than the third quarter 2006, as a 35% decrease in pounds shipped offset higher raw material surcharges and an improved product mix. While total high-value products shipments were 2% lower than the third quarter 2006, shipments of specialty and titanium sheet, specialty plate, and grain-oriented silicon electrical steel increased 16%. Shipments of standard grade products decreased 52%. Average transaction prices for all products, which include surcharges, were 49% higher.
Segment operating profit increased to $123.0 million (17.3% of sales), a $19.9 million increase compared to the third quarter 2006. The significant increase in operating profit was primarily as a result of improved product mix for higher value products and the benefits of gross cost reductions.
The rapid decline in nickel and nickel-bearing scrap prices during the period resulted in a LIFO inventory valuation reserve benefit of $18.2 million in the third quarter 2007, which partially offset the FIFO margin compression resulting from this rapid decline in raw material costs. The third quarter 2006 included a LIFO inventory valuation charge of $42.2 million.
Results benefited from $17.2 million in gross cost reductions.
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Third Quarter Results—Net income of $193.9 million ($1.88 per share) compares to net income of $160.2 million ($1.56 per share) in the third quarter of 2006. Sales of $1.33 billion compare to sales of $1.29 billion in the third quarter of 2006.
Nine Month Results—Net income of $598.2 million ($5.81 per share) compares to net income of $411.0 million ($4.02 per share) for the nine months ended September 30, 2006. Sales of $4.18 billion compare to sales of $3.54 billion for the comparable year-ago period.
Management Comments—“Our third quarter 2007 results had two divergent story lines,” said L. Patrick Hassey, Chairman, President and CEO. “Strong demand trends continued in our High Performance Metals segment and for our high-value flat-rolled products. On the other hand, shipments of our standard stainless products were extraordinarily weak.”
“Compared to the same period last year, shipments of our High Performance Metals segment titanium, nickel, and exotic alloys grew 18%, 5%, and 10%, respectively. In our Flat-Rolled Products segment, shipments of titanium and ATI-produced Uniti titanium products grew 25% to approximately 2.6 million pounds, and shipments of our grain-oriented silicon electrical steel grew 12%, both compared to last year’s third quarter. In contrast to this strong performance, shipments of our standard stainless products declined 52% to approximately 57 thousand tons, which is the lowest level in many years.
“As previously stated, we had expected orders and shipments for our flat-rolled standard stainless sheet to improve once the price of nickel stabilized. The monthly average price of nickel did stabilize during the third quarter and the October surcharge for Type 304, the most common nickel-bearing stainless grade, is the lowest surcharge for that grade in eleven months. In addition, U.S. service center data indicates that inventories continued to decline during the third quarter. However, according to published information, mill-owned inventories of finished goods increased. ATI neither built a significant quantity of inventory, nor did we chase the base price down just to increase our shipments. We believe that our standard stainless sheet business should begin to improve in early 2008.
Outlook—“We see growth in demand for our high-value products from our key growth markets, which represent 70% of ATI sales. During the last few months, ATI’s operating companies have added several long-term agreements (LTAs) with customers in the global aerospace and defense, chemical process industry, oil and gas, electrical energy, and medical markets. We expect total revenue under these agreements to total approximately $1.0 billion. The timeframe for these agreements generally ranges from 2 years to 5 years. They are structured to address changes in raw material, manufacturing, and energy costs. LTAs offer an excellent foundation for sustained growth, while developing deeper relationships with our customers.
“Our long-term profitable growth outlook remains intact. We believe ATI remains very well-positioned to achieve strong earnings growth in 2008 and beyond from the global markets that have been driving our profitable growth over the last several years.
“Cash flow from operations remained strong during the third quarter. Cash on hand at the end of the third quarter 2007 was nearly $664 million, an increase of $134 million compared to the previous quarter. This is after $130 million of capital expenditures in the third quarter. Our self-funded strategic capital projects remain on track. We believe our strong cash position provides additional opportunities to enhance shareholder value.
“As previously announced, we now expect full-year 2007 earnings per share to be in the range of $7.00 to $7.25—a 25% to 29% growth in earnings per share compared to 2006.”
Allegheny Technologies is one of the largest and most diversified specialty metals producers in the world with revenues of $5.6 billion during the most recent four quarters ending September 30, 2007. The company’s 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.
