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Mixed Bag from Allegheny Tech - Analyst Blog

Posted
1/23/2013 2:41:00 PM
By: Zacks.com
Referenced Stocks:ATI;CRS;HAYN;PCP

Specialty steel maker Allegheny Technologies Inc. ( ATI ) reported fourth-quarter 2012 adjusted earnings of 18 cents per share, down from 31 cents recorded a year ago. The results, however, beat the Zacks Consensus Estimate by a penny.

The adjusted earnings exclude charges related to asset write-downs in the Pennsylvania-based company's Engineered Products division associated with the closing of a casting facility. Profit, as reported, sagged 67% year over year to $10.5 million (or 10 cents per share) on lower sales.

Revenues slipped 12% year over year to $1,101.1 million, trailing the Zacks Consensus Estimate of $1,139 million. Sales fell as the company saw declines across the board in the quarter.

Allegheny, which is among the prominent players in the U.S. specialty steel industry along with Carpenter Technology ( CRS ), Haynes International ( HAYN ) and Precision Castparts ( PCP ), said that uncertain economic conditions led to lower demand for its products in the quarter. The company also witnessed lower pricing for its standard stainless products.

Operating profit dipped 17% year over year to $95.3 million in the quarter with operating margin contracting to 8.7% from 9.1% a year ago.

For full-year 2012, adjusted earnings of $1.51 per share beat the Zacks Consensus Estimate of $1.48 while declining from $2.23 per share recorded in 2011. Profit, as reported, fell 26% year over year to $158.4 million or $1.43 per share.

Revenues for the year fell roughly 3% year over year to $5,031.5 million and missed the Zacks Consensus Estimate of $5,068 million.

Segment Review

Revenues from the High Performance Metals segment fell 4% year over year to $503.8 million in the quarter due to lower shipments of specialty steel alloys and a decline in raw material surcharges resulting from lower nickel raw material and titanium scrap costs.

Shipments of nickel-based and specialty alloys went down 6% due to weakness in the electrical energy market while titanium and titanium alloys mill products shipments edged up 1% as lower demand from the jet engine market was offset by higher shipments to airframe customers. Improved demand for niobium-titanium alloy products from the medical market led to a 9% rise in the shipment of zirconium and related alloys in the quarter.

Flat-Rolled Products segment revenues were down 17% to $495.6 million on account of reduced raw material surcharges and lower standard stainless product pricing. Lower shipment of titanium products to industrial markets also contributed to the decline.

Shipments of high-value products fell 12% while standard stainless products shipment climbed 28%. Average selling prices for standard stainless products and high-value products fell 14% and 20%, respectively.

Sales in the Engineered Products division tumbled 21% to $101.7 million, hurt by weak demand for tungsten-based products and industrial forgings. The company witnessed weak demand from the construction and mining, transportation, and oil and gas markets.

Financial Position

Allegheny ended 2012 with cash and cash equivalents of $304.6 million, down 20% year over year. Total debt of $1,480.1 million represents around 2% year over year decline. Net debt as a percentage of total capitalization rose to 32.2% from 31.3% a year ago. Total debt-to-capital ratio was 37.4% at the end of 2012, down modestly from 37.9% recorded a year ago.

Outlook

Moving ahead, the company expects business conditions in the first quarter as well as the first half of 2013 to remain challenging given the uncertainties surrounding the U.S. fiscal policy and weak global economy.  

Nevertheless, the company expects to continue to benefit from its new alloys and products, diversified global growth markets and differentiated product mix. It envisions growth in its key end markets such as aerospace, oil and gas and medical over the long term. The company expects demand for jet engine spare parts to improve in the second half of 2013.

The company, however, sees demand from the electrical energy market to remain sluggish in the near term, in part, due to weak GDP growth in advanced economies.

Allegheny further noted that it will remain focused on improving its cost structure and expects at least $100 million in gross cost reductions this year. The company expects modest year over year improvement in sales and operating profit in 2013. It also envisions capital spending of roughly $550 million in 2013.  

Allegheny currently retains a short-term (1 to 3 months) Zacks Rank #4 (Sell).



ALLEGHENY TECH (ATI): Free Stock Analysis Report

CARPENTER TECH (CRS): Free Stock Analysis Report

HAYNES INTL INC (HAYN): Free Stock Analysis Report

PRECISION CASTP (PCP): Free Stock Analysis Report

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