Allegheny Technologies Incorporated (NYSE: ATI) reported first quarter 2015 sales of $1.13 billion and net income attributable to ATI of $10.0 million, or $0.09 per share. Results improved over the fourth quarter 2014, with higher sales to key end markets, and a 25% improvement in segment operating profit including lower Hot-Rolling and Processing Facility (HRPF) start-up and Rowley titanium sponge facility Premium Quality (PQ) qualification costs. Fourth quarter 2014 net income attributable to ATI from continuing operations was $1.4 million, or $0.01 per share, excluding an $18.5 million net of tax, or $0.17 per share, gain from postretirement benefit changes. Fourth quarter 2014 net income attributable to ATI from continuing operations including the gain from postretirement benefit changes was $19.9 million, or $0.18 per share. For the first quarter 2014, the net loss from continuing operations attributable to ATI was $18.1 million, or $(0.17) per share, on sales of $987.3 million.

“Aerospace market sales increased 14% in the first quarter 2015 compared to the fourth quarter 2014. We saw double-digit demand growth from both jet engine and airframe customers of 14% and 22%, respectively,” said Rich Harshman, Chairman, President and Chief Executive Officer. “First quarter aerospace demand was led by organic growth of our mill products. Sales of our nickel-based alloys and specialty alloys increased 15% and sales of our titanium alloys grew 16% with a good mix of value-added mill products. We expect sales growth of our precision forgings, castings, and components to begin later this year supported by the build ramp of next-generation jet engines.”

ATI first quarter sales improved over 7% compared to the fourth quarter 2014. High Performance Materials & Components segment sales increased over 8% to $543 million, and Flat Rolled Products segment sales increased over 6% to $583 million, which was accomplished despite lower raw material surcharges.

• ATI’s sales to key global markets represented 78% of ATI sales for 2015:
  • Sales to the aerospace and defense markets were $408 million and represented 36% of ATI sales: 18% jet engine, 12% airframe, 6% defense.
  • Sales to the oil and gas/chemical process industry market were $210 million and represented 19% of ATI sales: 12% oil & gas, 7% chemical process industry.
  • Sales to the electrical energy market were $108 million and represented 10% of ATI sales.
  • Sales to the automotive market, which is now a key global growth market for ATI, were $96 million and represented 8% of ATI sales.
  • Sales to the medical market were $58 million and represented 5% of ATI sales.
• Direct international sales increased 10% to $454 million compared to the fourth quarter 2014 and represented 40% of ATI’s first quarter 2015 sales.
• Sales of high-value products were almost 80% of ATI first quarter 2015 sales and increased over 9% compared to the fourth quarter 2014.

“Segment operating profit was nearly $84 million, or 7.4% of sales,” Mr. Harshman continued. “While we are not satisfied with this level of profitability, it represents a 25% improvement over the fourth quarter 2014 and nearly double the segment operating profit of the first quarter 2014. Operating profit in the High Performance Materials & Components segment was $75.9 million, or 14.0% of sales. Segment operating profit continued to be negatively impacted by lower operating rates at our Rowley, UT titanium sponge facility and by our strategic decision to use ATI-produced titanium sponge rather than lower cost titanium scrap to manufacture certain products. Segment sales growth to the aerospace market more than offset a 17% decline in sales of our products from the oil & gas exploration market. Flat Rolled Products segment operating profit improved to $7.9 million, or 1.4% of sales. Flat Rolled Products segment operating profit was reduced by $11.8 million of HRPF startup costs and inventory charges related to the market-based valuation of industrial titanium products.

“The titanium PQ product and process qualification program remains on schedule for mid-year 2015 completion for products used in jet engine rotating parts made with ATI Rowley titanium sponge. Going forward, we expect High Performance Materials & Components segment results to continue to be negatively impacted by low operating rates at our Rowley facility throughout 2015 until we complete the ramp-up of titanium sponge production rates.

“Our new Hot-Rolling and Processing Facility is now fully integrated into daily operations. The HRPF is producing our high-value and standard flat rolled products in wider, longer, and thinner coils as designed. As expected, we are also seeing significant operating improvement at our finishing facilities from the larger coils with tighter and consistent gauge control from edge-to-edge and tip-to-tail. The HRPF was built to enable a lower cost, high quality operation. Our goal is to use the unique capabilities of the HRPF to transform and reengineer ATI’s Flat Rolled Products business into a cost competitive global leader in the markets that we serve.

“Cost reduction remains a strategic focus and we have targeted a minimum of $100 million in new gross cost reductions for 2015. Our operations achieved $25 million in gross cost reductions during the first quarter 2015. These cost reductions will benefit ATI operations over the rest of 2015. In addition, managed working capital was reduced to 35.6% of annualized sales at the end of March 2015 from 38.5% at year-end 2014 due to higher sales volume in the first quarter 2015.

“Our balance sheet remains solid, with cash on hand of $238 million at the end of the first quarter 2015 and no borrowings outstanding under our $400 million domestic borrowing facility. Total debt to total capitalization of 37.0% at the end of the first quarter 2015 was unchanged from year-end 2014. Including remaining payments associated with the HRPF project, we currently expect 2015 capital expenditures to be approximately $290 million, of which $23 million was spent in the first quarter.

For the full report, visit www.atimetals.com.