Allegheny Technologies Inc. (ATI): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report


We are retaining our Neutral recommendation on Allegheny Technologies. The first-quarter loss was wider than the Zacks Consensus Estimate, while sales fell on double-digit declines across operating segments and also missed expectations. The company expects business conditions to gradually improve through 2014. Allegheny should benefit from its diversified global growth markets and cost reduction measures. The company is seeing improving demand from aerospace OEMs and is effectively managing its cost structure. However, it is still contending with a soft global economy. Reduced raw material surcharges and low base prices for standard stainless products continue to hurt results in the company's Flat-Rolled Products division.


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 companies.

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% interest.

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 $4,044 million in 2013 with Flat-Rolled Products and High Performance Metals divisions accounting for 52% and 48%, respectively.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Stocks

Referenced Stocks: ATI , KMT

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