Allegheny Technologies Reports 4th Quarter Results
01/24/2008 - Allegheny Technologies reports net income of $148.9 million on sales of $1.27 billion for the fourth quarter, and net income of $747.1 million on sales of $5.45 billion for the full year 2007.
Allegheny Technologies Inc. reported net income of $148.9 million on sales of $1.27 billion for the fourth quarter, and net income of $747.1 million on sales of $5.45 billion for the full year 2007.
Fourth Quarter Results—Net income of $148.9 million ($1.45 per share) compares to net income of $163.1 million ($1.59 per share) in the fourth quarter of 2006. Sales of $1.27 billion reflect an 8.8% decrease compared to sales of $1.40 billion in the fourth quarter 2006.
Compared to the fourth quarter 2006, sales increased 5% in the High Performance Metals segment, but declined 18% in the Flat-Rolled Products segment. Sales for the Engineered Products segment were flat compared to the fourth quarter 2006.
Segment operating profit was $244.4 million, a decrease of $55.9 million (19%) compared to the fourth quarter 2006, as a result of declines in the Flat-Rolled Products and Engineered Products segments. Results included a LIFO inventory valuation reserve benefit of $73.5 million, due primarily to lower nickel and titanium scrap costs; this benefit offset the FIFO margin compression resulting from lower raw material indexes and surcharges in the company’s High Performance Metals and Flat-Rolled Products segments. The fourth quarter 2006 period included a LIFO inventory valuation reserve charge of $90.6 million.
Capital expenditures were $166.4 million, and gross cost reductions for the quarter, before the effects of inflation, totaled $29.4 million.
Full Year Results—Net income of $747.1 million ($7.26 per share) reflects a 30% increase compared to net income of $574.1 million ($5.61 per share) reported in the year 2006. Sales of $5.45 billion reflect a more-than-10% increase compared to sales of $4.94 billion in 2006.
Sales increased 14% in the High Performance Metals segment, and 9% in the Flat-Rolled Products segment, but were essentially flat for the Engineered Products segment. Segment operating profit was over 23% of sales, and direct international sales in 2007 were nearly $1.5 billion, equivalent to approximately 27% of sales.
Segment operating profit was $1.27 billion (23.2% of sales); the company attributes the $204.5 million increase (compared to 2006) to improved performance in the High Performance Metals and Flat-Rolled Products segments. Results included a LIFO inventory valuation reserve benefit of $92.1 million, due primarily to lower nickel and titanium scrap raw material costs. In 2006, higher nickel, nickel-bearing scrap, and titanium raw material costs resulted in a LIFO inventory valuation reserve charge of $197.0 million.
Cash flow from operations was $709.8 million, including a $100 million voluntary pension contribution made in the fourth quarter 2007. The full year cash flow from operations included an investment of $44.3 million in managed working capital resulting primarily from increased business activity.
Capital expenditures for the year totaled $447.4 million, and gross cost reductions, before the effects of inflation, totaled $111.6 million, which exceeded the company’s 2007 gross cost reduction target of $100 million. ATI’s 2008 gross cost reduction target is also $100 million.
Management Comments—“In 2007, we strengthened our position in key global growth markets, launched new production facilities, and solidified our balance sheet while achieving record sales and profits,” said L. Patrick Hassey, Chairman, President and CEO.
“Cash flow was strong in 2007. Cash on hand at the end of the year was $623 million, an increase of $121 million over 2006. This is after investing $447 million in capital expenditures and making a $100 million voluntary pension contribution. We also repurchased 674,800 shares of ATI stock for approximately $61 million since mid-November 2007. At the end of 2007, ATI had more cash than debt.
“Other important financial metrics were also strong in 2007. Return on capital employed was 31% and return on stockholders’ equity was 40%.
“As expected, the fourth quarter 2007 turned out to be a difficult quarter for our standard grade stainless sheet shipments, primarily due to U.S. and European service center customers’ destocking actions. Shipments of these products were only about 66,400 tons, which is well below our target needed to operate efficiently. In addition, operating profit in our Engineered Products segment was not acceptable. In particular, our tungsten products business was negatively impacted by start-up costs at the APT (ammonium paratungstate) plant.
The company finished the year with cash on hand of $623.3 million, a $121.0 million increase from year-end 2006.
Outlook—“We believe our long-term profitable growth outlook remains intact,” said Hassey. “ATI is well positioned due to the growing global markets that have been driving our performance over the last several years, our new production facilities, and our strong financial position. We expect demand from the commercial aerospace market to remain at high levels as our airframe and jet engine customers’ backlogs are at record levels. We also expect demand from the chemical process industry, oil and gas, and electrical energy markets to stay strong as the global infrastructure build and rebuild continues.
“Order entry for our flat-rolled standard grade stainless sheet improved late in the fourth quarter 2007 and has further improved in January. It appears that the major U.S. service centers now have their inventories in better balance.
“While we remain steadfast in our long-term growth outlook, short-term visibility is unclear. Some customers are currently cautious due to the U.S. economy. We also see caution in the aerospace supply chain due to the uncertainty of the Boeing 787 Dreamliner build schedule and ramp-up, even though build rates for existing models are scheduled to increase significantly, and demand for jet engine spare parts remains robust.
“At this point, we believe first quarter 2008 results are likely to be similar to those achieved in the fourth quarter 2007. We remain optimistic about 2008. However, we expect to have a better understanding of the potential upside for the balance of 2008 once we get beyond the first quarter.”
Allegheny Technologies Inc. is one of the largest and most diversified specialty metals producers in the world with revenues of $5.5 billion during 2007. ATI’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.
