Allegheny Technologies Reports Full Year 2008 Results
01/22/2009 - Allegheny Technologies Inc. reported net income of $110.9 million on sales of $1.11 billion for the fourth quarter, and net income of $565.9 million on sales of $5.31 billion for the full year 2008.
Allegheny Technologies Inc. reported net income of $110.9 million on sales of $1.11 billion for the fourth quarter, and net income of $565.9 million on sales of $5.31 billion for the full year 2008.
Fourth Quarter Results—The $110.9 million net income ($1.15 per share) compares to net income of $148.9 million ($1.45 per share) in the fourth quarter 2007. Sales of $1.11 billion reflect a 12.6% decrease compared to sales of $1.27 billion in the fourth quarter 2007.
Sales declined 12% in the High Performance Metals segment, 14% in the Flat-Rolled Products segment, and 7% in the Engineered Products segment, all as compared to the year-ago fourth quarter.
Full Year Results—The $565.9 million net income ($5.67 per share) compares to net income $747.1 million ($7.26 per share) in 2007. Sales of $5.31 billion represent a 2.6% decrease from sales of $5.45 billion for 2007.
Direct international sales increased to $1.49 billion, representing 28% of total sales. Compared to the full year 2007, sales decreased 6% in the High Performance Metals segment and 1% in the Flat-Rolled Products segment, and increased 5% in the Engineered Products segment.
The company reported segment operating profit of $937.3 million (17.7% of sales), reflecting a $329.1 million decrease compared to 2007. The company said the decrease was the result of lower profitability across all business segments.
Management Comments—“2008 was the second-best year for sales and earnings per share in the history of ATI,” said L. Patrick Hassey, Chairman, President and CEO, commenting on results. “This was accomplished even with supply-chain disruptions and schedule push outs in the aerospace market and an unprecedented fall in demand from many of our other markets during the fourth quarter.”
Hassey said the company’s 2008 results reflect its transformation into a “globally focused, diversified high-value specialty metals company with strong cash flow and liquidity, and a solid balance sheet.”
He noted that titanium product shipments had increased by approximately 15% over 2007, while shipments of grain-oriented electrical steel increased 9% and shipments of exotic alloys increased 6% over the same period. Direct international sales were 28% of sales, and the company also achieved over $134 million of gross cost reductions through its ATI Business System.
He noted that titanium product shipments had increased by approximately 15% over 2007, while shipments of grain-oriented electrical steel increased 9% and shipments of exotic alloys increased 6% over the same period. Direct international sales were 28% of sales, and the company also achieved over $134 million of gross cost reductions through its ATI Business System.
“Key financial metrics were strong during the year,” continued Hassey. “Return on capital employed was 21.8% and return on stockholders’ equity was 27%.
“ATI’s financial position remains strong. At the end of 2008, we had $470 million of cash, no borrowings under our $400 million domestic credit facility, no significant near-term debt maturities, and net debt to total capitalization of 2%. This strong financial position is after self-funded capital investments in 2008 of $516 million and over $278 million in share repurchases. We also made a $65 million voluntary contribution to our U.S. defined benefit pension plan during the fourth quarter 2008, which consisted of $30 million of cash and 1.5 million shares of ATI common stock.
“The combination of the continuing credit crisis and the global recession has resulted in challenging conditions in many of our markets. We currently have limited short-term visibility. We have taken actions to adjust our production schedules, preserve cash and maintain our liquidity, ratchet up our cost reductions, and continue the transformation of ATI. To help ensure that ATI remains solidly profitable in 2009, we have contingency plans ready to be implemented should our markets not stabilize and business conditions deteriorate further.
Outlook—Looking ahead, Hassey said the company was currently anticipating 2009 capital expenditures of approximately $450 million. He said the company is still committed to continue self-funding of the projects, and that it could further adjust the timing for any of the projects if necessary.
Hassey also said the company was targeting a minimum of $150 million in new gross cost reductions in 2009, noting that the company is focused on improving inventory turns. He said this would help to limit the amount of cash used in managed working capital as well as the company’s exposure to volatile raw material costs.
According to Hassey, the company also expects 2009 pretax retirement benefit expense (including pension and other post-retirement benefits) of approximately $140 million, or nearly $35 million per quarter, primarily as a result of the historic negative returns in equity and fixed income markets in 2008. The projected amount represents an increase of nearly $132 million compared to 2008.
“We expect 2009 to be challenging,” said Hassey. “We believe that weak demand from many of our end markets will continue through the first half. In addition, we expect first-quarter income before tax to be negatively impacted by a raw materials/surcharge mismatch of nearly $70 million. Most of this will impact the Flat-Rolled Products segment and results from the unprecedented drop in raw material costs over the last three months of 2008. We do not believe that this issue will have a significant impact beyond the first quarter.
“As a result of the challenging economy, the expected significant increase in retirement benefit expense, and the raw materials/surcharge mismatch, we expect first quarter 2009 results to be at or near breakeven,” continued Hassey.
“The aerospace and defense and global infrastructure markets, namely chemical process industry, oil and gas, electrical energy, and medical, have been driving our performance for the last several years. These markets accounted for over 70% of ATI sales in 2008. We continue to believe that these markets have strong growth potential over the intermediate and long-term.
“We intend to use these difficult market conditions to continue to positively differentiate ATI as a uniquely positioned, diversified, technology-driven global specialty metals producer,” concluded Hassey.
Allegheny Technologies Inc. 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. Its 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.
