We are retaining our Underperform recommendation on
Allegheny Technologies
(
ATI
) following its disappointing third quarter results. Earnings of
32 cents a share fell well short of the Zacks Consensus Estimate
of 39 cents. Revenues sagged nearly 10% year over year to
$1,220.5 million, also missing the Zacks Consensus Estimate of
$1,297 million.
Allegheny saw a 43% decline in its profit as sluggish economic
conditions led to weak demand for its products in the quarter.
The Pennsylvania-based company cut its sales forecast for 2012
factoring in the current soft macroeconomic backdrop, sustained
weak demand and aggressive inventory managements by its
customers.
Allegheny, which competes with
Carpenter Technology Corp.
(
CRS
) among others, is one of the world's largest and most diverse
specialty metals companies. It 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 and differentiated product mix.
However, the company is contending with a soft economy and raw
material cost pressures. Moreover, reduced raw material
surcharges and low base prices of standard stainless products are
hurting the results of its key Flat-Rolled Products division.
Revenues from this segment slipped nearly 19% in the third
quarter. Delays in some large oil and gases projects affected the
segment's results in the quarter.
Demand for the company's standard stainless products has been hit
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. The company envisions the business environment to
remain challenging in the fourth quarter and its results to be
lower sequentially. The uncertain economic environment given the
concerns surrounding the U.S. fiscal cliff, euro zone debt crisis
and slowdown in China is expected to weigh on the company's
results in the fourth quarter.
Our recommendation on Allegheny is in sync 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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