We are downgrading our recommendation on
Allegheny Technologies
(
ATI
) to Underperform considering the raw material cost pressure and
weakness in its Flat-Rolled Products division.
The company saw its profit decline in first-quarter 2012 due to
increased costs -- in particular, higher retirement expenses.
Earnings of 50 cents a share matched the Zacks Consensus Estimate
while revenues (of $1,352.5 million) missed the forecast.
Allegheny is one of the world's largest and most diverse specialty
metals companies. It competes with
Carpenter Technology Corp.
(
CRS
) among others. Allegheny is a significant supplier to commercial
aircraft engine manufacturers and is also expanding its footprint
in the commercial airframes market.
Allegheny is expected to benefit from its new alloys and products,
diversified global growth markets, differentiated product mix and
healthy demand across aerospace, oil, electrical energy,
gas/chemical process and medical industries.
However, Allegheny is contending with cost-pressures associated
with raw material inflation. Rising input costs are putting margin
pressure on all domestic steel manufacturers.
Moreover, lower volumes, reduced raw material surcharges and low
base prices of standard stainless products may affect the results
of the company's Flat-Rolled Products division.
Demand for the company's standard stainless products has been hurt
by rapidly falling raw material surcharges, resulting in customers
delaying purchases. In addition, the same factors appear to be
influencing short-term demand for some high-value products from
some key end-markets as many customers are being cautious and
keeping inventories lean.
Moreover, the soft U.S. and European economies remain as overhangs
and the sustained high unemployment levels may impact short-term
consumer confidence. Our recommendation on Allegheny is in
agreement with a short-term Zacks #5 Rank (Strong Sell).
ALLEGHENY TECH (ATI): Free Stock Analysis
Report
CARPENTER TECH (CRS): Free Stock Analysis
Report
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