Allegheny Technologies Inc. (ATI) reported first-quarter 2012 earnings of 50 cents per share, down from 54 cents a year ago. The results were in line with Zacks Consensus Estimate.

Revenues increased 10.2% year over year to $1,352.5 million. However, it missed the Zacks Consensus Estimate of $1,362 million. The company witnessed strong growth in its major markets. The High Performance Metals segment contributed 46% increase in sales. Operating profit was almost flat at $163.2 million compared with the year ago quarter.

Segment Results

Sales in the High Performance Metals segment surged 46% to $581.3 million in the quarter. The increase was driven by strong demand for titanium and titanium alloys, nickel-based and specialty alloys, and forged and cast components. The acquisition of ATI Ladish resulted in a number of growth opportunities and drove the sales figures.

Operating profit of the segment increased to $104.1 million, from $85.6 million, in the year ago quarter. The acquisition of Ladish, higher shipment volumes and base prices for most products, and the benefits of gross cost reductions led to an increase in operating income. However profits were partially offset by higher raw material costs of about $6 million.

Sales in the Flat-Rolled Products segment declined by 10% to $636 million on account of lower volumes and reduced raw material surcharges. Shipments of high-value products remained flat compared with the year-ago quarter, while those of standard stainless products (sheet and plate) decreased 8%. Operating profit decreased by 26.2% to $46.8 million in the reported quarter due to lower shipment volumes and lower base prices for standard stainless products.

Sales in the Engineered Products segment soared 15% to $135.2 million, driven by higher demand from the oil and gas, aerospace and construction and mining markets and higher prices for tungsten-based products and carbon alloy steel forgings.

Segment operating profit was $12.3 million in the quarter compared with $13.4 million in the first quarter of 2011. Operating profit was affected by $1.5 million in start-up costs associated with Allegheny’s new ATI Fabricated Components business. The company continued to improve its cost structure with almost $29 million in gross cost reductions during the first quarter of 2012.

Financials

Allegheny’s cash and cash equivalents stood at $250.3 million as of March 31, 2012, compared with $380.6 million as of December 31, 2011. Cash flow used in operations during the first quarter 2012 was $18.2 million, resulting from an investment of $155 million in managed working capital, due to increased business activity.

Net debt as a percentage of total capitalization was 33.4% as of March 31, 2012, compared with 31.3% as of December 31, 2011. Total debt to total capital was 37.5% as of March 31, 2012, compared with 37.9% as of December 31, 2011.

Outlook

Allegheny expects to continue to benefit from its new alloys and products, diversified global growth markets and differentiated product mix. The company reaffirmed its expectations for revenue growth to be at least 10% in 2012 and segment operating profit in the range of 13% to 14% of sales.

In its High Performance Metals segment, the company expects to have a strong demand for its products in its major markets and also higher return from its acquired company Ladish. Allegheny expects to have a lower cost structure at its Rowley titanium sponge facility, additional premium-titanium melt capacity from its new PAM 4 furnace, and growth in demand for new products.

In its Flat-Rolled Products segment, the company anticipates increased demand from its high value products and expects to have consistent growth in demand from its standard stainless products. Allegheny forecasts that its upcoming large projects in the oil and gas/chemical process industry market, including desalination, will begin in the third quarter of 2012.

In the Engineered Products segment, the company expects continued growth in demand for its tungsten-based products and industrial forgings and castings.

Based in Pittsburgh, Pennsylvania, Allegheny Technologies produces and sells specialty metals worldwide. Its primary competitor includes Carpenter Technology Corp. (CRS). The company currently retains a Zacks #4 Rank, reflecting a short-term (1 to 3 months) Sell rating. Currently, we have a long-term (more than 6 months) Neutral recommendation on the stock.

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