Allegheny Technologies Inc.
(ATI) recorded a net income of $18.2 million or 18 cents in the first quarter of 2010, up from last year’s net income of $5.9 million or 6 cents per share. Results included a non-recurring tax charge of $5.3 million related to the recently-enacted Patient Protection and Affordable Care Act. Excluding this non-recurring tax charge, net income was $23.5 million or 24 cents per share, exceeding the Zacks Consensus Estimate by a penny.
Revenues increased 8.2% year over year to $899.4 million in the quarter, primarily due to higher Flat-Rolled Products and Engineered Products shipments, higher raw material surcharges and increase in average base selling prices for certain products.
High-Performance Metals
Sales in the segment declined 22% to $302.3 million on a 12% decline in shipments of titanium and titanium alloys and 15% decline in nickel-based and specialty alloys. The fall was primarily due to a lower demand from the commercial aerospace market. Shipments of exotic alloys decreased 24%, primarily due to the timing of projects for the chemical process industry.
Average selling prices declined 16% for titanium and titanium alloys and 8% for nickel-based and specialty alloys primarily due to lower raw material costs and a competitive pricing environment. Average selling prices for exotic alloys, however, increased 7% due to a favorable product mix.
Flat-Rolled Products
Sales in the segment were up 37% year over year to $516.6 million primarily due to higher shipments and raw material surcharges and improved base-selling prices for stainless products. Shipments of standard stainless products (sheet and plate) increased 54% while total high-value product shipments increased 18%. Average transaction prices for all products, which include surcharges, were 1% higher due to increased raw material surcharges and improved base prices for stainless products.
Engineered Products
Sales of $80.5 million in this segment were 23% higher than the previous year, primarily due to higher demand in oil and gas, cutting tools, transportation, aerospace, electrical energy and automotive markets.
Allegheny has achieved gross cost reductions of $37 million in the quarter. Cash in hand was about $563.5 million at the end of the quarter, and net debt to total capitalization was 19.9%.
The company expects orders from premium-titanium alloys and nickel-based alloys from the jet engine supply chain to continue to improve and orders from the airframe supply chain to remain stable in the High Performance Metals segment. As order inquiries for exotic alloys are beginning to increase, the company expect shipments to improve in the second half 2010. The company is witnessing steady improvement in demand in the Flat-Rolled Products segment.
Allegheny expects a gradual and steady improvement in most of its global markets in 2010. The company plans to improve its cost structure further and targets cost savings of $100 million in 2010. The capital investment is expected to be approximately $375 million in 2010.
We believe Allegheny’s solid balance sheet, limited debt maturity and cost reduction efforts position it much better than in the previous downturns. Its growth projects will give it increased leverage in the next upturn.
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