We are downgrading our recommendation on Allegheny Technologies to
Underperform. Earnings for the fourth-quarter 2014 came ahead of
the Zacks Consensus Estimate. However, consolidated profit (as
reported), slid year over year. Sales rose year over year on gains
across the board, but missed expectations. While Allegheny should
benefit from its diversified global growth markets and cost
reduction measures, it remains affected by a sluggish global
economic recovery and a few end-market challenges. Falling oil
prices are expected to hurt demand for its products in the oil and
gas market in the short haul. Moreover, costs associated with the
HRPF and Rowley projects are expected to continue weighing on the
profitability in the Flat-Rolled Products segment.
Pittsburgh, Pennsylvania-based Allegheny Technologies Inc. is a
diversified specialty materials producer. The company was created
in November 1999 when Allegheny Teledyne spun out Teledyne
Technologies and Water Pik Technologies into standalone
Allegheny originally had three main business segments:
Flat-Rolled Products, High Performance Metals and Engineered
Products. However, the company, in October 2013, announced the
restructuring of its Engineered Products segment.
The restructuring include the integration of the specialty steel
forgings business into ATI Ladish's forgings operations in the High
Performance Metals division and the integration of the precision
titanium and specialty alloy flat-rolled finishing business into
ATI Allegheny Ludlum's specialty plate business in the Flat-Rolled
Products segment. Other businesses that comprised the Engineered
Products division have been classified as discontinued operations
and include the tungsten materials business and the iron castings
and fabricated components businesses.
Allegheny, on November 4, 2013, completed the sale of its
tungsten materials business to Latrobe, PA-based wear-resistant
products company Kennametal Inc. (KMT) for $605 million. The
business unit produces tungsten powder, tungsten heavy alloys,
tungsten carbide materials and carbide cutting tools.
Allegheny decided to divest its tungsten materials business so
that it can focus more on its core businesses High Performance
Metals and Flat-Rolled Products. The move is also expected to
increase Allegheny's financial flexibility and simplify its capital
allocation and deployment.
Allegheny's Flat-Rolled Products segment produces, converts and
distributes stainless steel, nickel-based alloys, titanium and
titanium-based alloys, and specialty alloys in various product
forms - plates, sheets, engineered strips and precision rolled
strip products, as well as grain-oriented electrical steel sheets -
to independent service centers and end-use customers. It serves
chemical process, oil and gas, electrical energy, automotive, food
equipment and appliances, machine and cutting tools, construction
and mining, aerospace and defense, electronics, communication
equipment and computer industries. In the segment, Allegheny owns a
60% interest in a Chinese joint venture company, Shanghai STAL
Precision Stainless Steel Company Limited (STAL), which commenced
commercial production in 2000. Baosteel Group owns the remaining
40%. Allegheny also owns a 50% interest in the industrial titanium
joint venture known as Uniti LLC. Verkhnaya Salda Metallugical
Production Association (VSMPO), the Russian producer of titanium,
aluminum and specialty steel products owns the remaining 50%
Allegheny's High Performance Metals segment produces, converts
and distributes high performance alloys including nickel and
cobalt-based alloys and super alloys titanium and titanium-based
alloys exotic metals (such as zirconium, hafnium, niobium and
nickel-titanium) and their related alloys and other specialty
alloys primarily in long product forms, such as ingot, billet, bar,
shapes and rectangles, rod, wire, seamless tube, and castings. It
sells products directly to end-users in the aerospace and defense,
chemical process industry, oil and gas, electrical energy and
medical sectors. About 70% of the demand in the segment comes from
the aerospace and defense market.
Allegheny recorded sales of roughly $4,223 million in 2014 with
Flat-Rolled Products and High Performance Metals divisions
accounting for 52% and 48%, respectively.
Allegheny Technologies Inc. (ATI): Read the Full
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