Allegheny Technologies Incorporated (ATI) recorded a net income of $37.8 million or 36 cents in the fourth quarter of 2009, down significantly from last year’s net income of $110.9 million or $1.15 per share. Reported earnings, however, exceeded the Zacks Consensus Estimate of 20 cents and the management’s guidance range of 20 cents to 25 cents. Earnings of $48.7 million or 49 cents for the full year 2009 were also ahead of the Zacks Consensus Estimate of 28 cents.
Revenues declined 27% year over year to $815.7 million in the quarter, representing lower shipments and raw material surcharges across all major segments.
High-Performance Metals
Sales in the segment declined 30% to $312.4 million on a 29% decline in shipments of titanium and titanium alloys and nickel-based and specialty alloys. The fall was primarily due to a lower demand from the commercial aerospace market. Shipments of exotic alloys improved 9%, primarily due to growing demand in the nuclear energy market.
Average selling prices declined 21% for titanium and titanium alloys and 11% for nickel-based and specialty alloys. Average selling prices for exotic alloys, however, increased 8% due to an increased demand for certain products and a favorable product mix.
Flat-Rolled Products
Sales in the segment were down 22% year over year to $438.5 million. Shipments of standard stainless products (sheet and plate) increased 24% while total high-value product shipments decreased 14%. Average transaction prices for all products, which include surcharges, were 25% lower due primarily to significantly reduced raw material surcharges.
Engineered Products
Sales of $64.8 million in this segment were 35% lower than the previous year. Demand for Allegheny’s tungsten and tungsten carbide products, forged products and cast products remained weak while demand for its precision finishing business improved.
Allegheny has achieved gross cost reductions of over $173 million in 2009, exceeding its cost reduction target of $150 million. Cash in hand was about $709 million at the end of the quarter, and net debt to total capitalization was 15.3%.
Allegheny’s new titanium and superalloy forging facility in North Carolina became operational in 2009. With the acquisition of assets worth $40.95 million from the New York-based Crucible Compaction Metals and Crucible Research, Allegheny has forayed into advanced powder metal products.
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. 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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