On Sep 8, Allegheny Technologies Incorporated (ATI), one of the largest and the most diversified specialty metals producers in the world, signed a ten-year agreement with Rolls-Royce plc, the British aircraft engine maker for the supply of nickel-based superalloy disc-quality products for commercial jet engine applications. The agreement covers products sold by ATI Allvac, a subsidiary of Allegheny Technologies, to Rolls- Royce first tier suppliers (forgers).
The Downtown Pittsburgh-based company anticipates revenue of $750 million to $1 billion from the contract. The work associated with the new contract will be performed at Allegheny Technologies new Baker, North Carolina , titanium and superalloy forging facility, scheduled to be completed this year. The North Carolina project is in addition to Allegheny Technologies pre-construction permitting for its $1.2 billion hot strip mill and processing facility at its Brackenridge complex. Production at the Brackenridge complex is expected to begin in 2012.
Allegheny Technologies serves the aerospace, defense, chemical process industry/oil and gas, electrical energy, medical, automotive, food equipment and appliance, machine and cutting tools, and construction and mining markets. The company’s earnings have remained depressed over the last year due to a downturn in the global economy, delays in completion and ramping of production levels in new aircraft designs. Decreased demand and lower pricing have pressured margins.
In the second quarter of 2009, Allegheny’s sales more than halved to $710 million, compared with $1,461.2 million in the same period of the previous year. Net earnings were in line with the Zacks Consensus Estimate of 4 cents or $13.4 million, however, significantly lower than $1.66 per share or $168.9 million reported in the second quarter of 2008.
We believe Allegheny’s solid balance sheet, limited debt maturity and cost reduction efforts, put the company in a much better position than in previous downturns. Its growth projects will give it increased leverage in the next upturn. We maintain our Neutral recommendation on the stock.
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