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Allegheny Technologies Reports Strong 1st Quarter
04/26/2007 - Allegheny Technologies reported net income of $197.8 million on sales of $1.37 billion for the first quarter 2007.
Allegheny Technologies Inc. reported net income of $197.8 million on sales of $1.37 billion for the first quarter 2007.
First Quarter Results—The $197.8 million net income ($1.92 per share) represents an 86% increase over net income of $106.5 million ($1.04 per share) for the first quarter of 2006. Sales of $1.37 billion represent a 32% increase over sales of $1.04 billion in the first quarter of 2006. Total segment operating profit was nearly 25% of sales.
Management Comments—“We are off to a good start in 2007 with another quarter of double-digit sales and earnings growth,” said L. Patrick Hassey, Chairman, President and CEO. “Our key growth markets—namely aerospace and defense, chemical process industry, oil and gas, and electrical energy—remain strong. Our strategic capital projects are beginning initial operations, providing further melting and finishing capacity for continued profitable growth in 2007 and beyond.
Segment Results—“In our High Performance Metals segment, most end markets were strong in the first quarter,” commented Hassey. “Sales were over $477 million and operating profit was over 35% of sales. First quarter 2007 shipments of our titanium mill products to airframe customers far exceeded our original expectations, while shipments of standard grade titanium and nickel-based alloy bar products were slightly lower in the first quarter due to inventory corrections by distributors, especially for medical and oil and gas applications. We are also seeing some customers for our nickel-based alloys and superalloys being cautious with their inventory levels due to the unusually high cost of nickel. Notably, demand for our exotic alloys is very strong, schedules are extended, and our order book is at an all-time record level. We are putting new emphasis on operational execution along with planned capital expansion to increase available capacity of our exotic alloys in 2007 and beyond.
“The transformation of our Flat-Rolled Products segment to a high-value specialty metals business continued. First quarter 2007 segment operating profit was a record 20.4% of sales due to strong shipments of specialty and titanium sheet, specialty plate, and grain-oriented silicon electrical steel products. This segment achieved a record quarterly operating profit of $160 million even though shipments of commodity stainless sheet were much lower as a result of inventory management actions at many of our U.S. service center customers. We remain sensitive to our customers’ concern with the dramatic increase in the cost of nickel. As a result, we continue to assist customers in switching to lower nickel-bearing alloys, a process that has changed our product mix and continues to gain momentum.
“Most major markets in our Engineered Products segment were strong,” continued Hassey. “The operating performance of our tungsten products business was not yet at the level we expect primarily because our APT (ammonium paratungstate) raw material plant expansion continues to ramp up. We now expect to be self-sufficient for our APT needs by the end of the second quarter 2007.
“ATI’s strategic capital projects remain on track and are expected to contribute significant growth with very good returns in the second half 2007 and beyond,” said Hassey. “The tenth titanium sponge reduction furnace at our Albany, Ore., facility began production in mid-April, bringing our current annual titanium sponge capacity at this facility to approximately 13 million pounds. We now expect the Albany facility will be capable of producing 22 million pounds annually of aerospace quality titanium sponge by the first half 2008. In addition, we remain on schedule to begin producing premium grade titanium sponge at our Rowley, Utah, facility by the end of 2008, with an additional 24 million pounds of annual capacity expected to be reached by mid-2009. The Utah facility will have the infrastructure in place to further expand capacity to 42 million pounds annually, if needed. On the titanium melt side, two new VAR (Vacuum Arc Remelt) furnaces are online and our third PAM (Plasma Arc Melt) furnace is in start-up. We expect this furnace to be qualified and in commercial operation in the third quarter 2007.
Outlook—“Looking ahead, we expect ATI’s overall performance in the second quarter 2007 to be similar to that achieved in the first quarter 2007 with improved results in our High Performance Metals segment offsetting somewhat lower results in our Flat-Rolled Products segment. However, continued volatility in the cost of nickel has the potential to drive LIFO charges in the second quarter 2007 higher than the first quarter 2007.”
In concluding his remarks, Mr. Hassey said, “Our key growth markets remain strong, and we are well positioned to benefit from these strong markets. Our strategic capital projects are providing opportunities for further profitable growth. Titanium alloy shipments under long-term agreements are expected to increase from first quarter 2007 levels over the course of the year. We expect revenue and operating profit growth in the High Performance Metals segment throughout the remainder of 2007. Sustained good performance is expected from the Flat-Rolled Products business. Finally, improving performance is expected from the Engineered Products business.”
