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Allegheny (ATI) Reports Loss in Q3, Sales Trail Estimates

Allegheny Technologies Inc.ATI posted adjusted loss from continuing operations of 29 cents per share in third-quarter 2015, compared with break even results recorded in the year-ago quarter. The loss, however, was narrower than the Zacks Consensus Estimate of a loss of 30 cents. The results exclude non-cash charges for Net Realizable Value (NRV) inventory reserves and income tax valuation allowances.

Including these charges, the company reported a net loss (attributable to Allegheny) of $145 million, or $1.35 per share. Results were negatively affected by continued pressure in its Flat Rolled Products segment, weak demand from the oil and gas markets, and operational disruptions resulting from labor dispute.

Revenues for the third quarter fell 22.1% year over year to $832.7 million and missed the Zacks Consensus Estimate of $964 million. Sales also declined 18.6% from the sequentially prior quarter due to a fall in sales in both the High Performance Materials and Components segment and the Flat Rolled Products segment.

Operating loss for third-quarter 2015 was $73 million, compared with operating profit of $59.9 million in the year-ago quarter and $21.2 million in the sequentially prior quarter. From the third quarter 2015, Allegheny's measure of segment operating performance excludes all impacts of LIFO and NRV inventory reserves, and includes all retirement benefit expenses attributable to the company's business units for both defined benefit and defined contribution plans.

Segment results include retirement benefit expense for pension and other postretirement benefit plans of $17.7 million in both the third and second quarter of 2015, and $20.7 million in third-quarter 2014.

Allegheny Technologies Inc. - Earnings Surprise | FindTheBest

Segment Review

Revenues from the High Performance Metals and Components segment fell 6.5% year over year to $474.7 million in the third quarter because of lower mill product shipments. Operating profit declined 65% year over year to $18.8 million due to lower sales of most products.

The segment remains affected by lower operating rates at the company's Rowley, UT titanium sponge facility and the strategic move to use ATI-produced titanium sponge rather than lower cost titanium scrap to make certain titanium products.

The Flat Rolled Products' segment sales went down 36.3% to $358 million, hurt by reduced shipments for almost all products, and lower base selling prices and raw material surcharges for standard products and most high-value products. Shipments of high-value products fell 18% year over year while those of standard stainless products slipped 36%.

Segment operating loss was $91.8 million, versus a profit of $6.1 million in the year-ago quarter. Results were affected by lower base-selling prices and falling raw material surcharges. Lower operating levels, including the temporary impacts of restarting facilities in the Flat Rolled Products operations following the mid-quarter lockout of United Steelworkers (USW)-represented workers, also weighed on segment results.

Financial Position

Allegheny's cash and cash equivalents as of Sep 30, 2015, were $197.5 million, compared with $264.2 million as of Sep 30, 2014, down around 25.2%. Long-term debt decreased 0.5% year over year to $1,501.6 million.

Cash flow provided by operations for the third quarter was $17.4 million. Total debt to total capitalization was 38.5% at the end of the third quarter 2015 compared with 34.7% at the end of the third quarter 2014.

Outlook

Allegheny, which is among the prominent players in the U.S. specialty steel industry, along with Carpenter Technology Corp. CRS , RTI International Metals, Inc. RTI and Haynes International, Inc. HAYN , does not expect to see any significant improvement in its key end markets until 2016.

In its Flat Rolled Products segment, Allegheny expects to reach a fair and more competitive labor agreement with the USW. The company aims to have the cost structure and enhanced product mix that allow the division to be a profitable and more competitive business.

During the reported quarter, Allegheny declared that it is consolidating and integrating a number of business units within its High Performance Materials and Components (HPMC) segment under a single Executive Vice President. Per the company, this step will result in a more streamlined, cohesive, and efficient business.

As part of this move, the company recently implemented a reduction in salaried workforce in both the HPMC segment and at its headquarters. Allegheny expects about $23 million in reduced costs from these actions starting in Jan 2016. Results in the fourth quarter are anticipated to include roughly $6 million in severance charges as a result of these workforce reductions.

The company remains optimistic that operating performance in its High Performance Materials and Components division will materially improve in 2016.

Allegheny also remain focused on cost-reduction and has set a target of at least $100 million in new gross cost reductions for 2015.

Including payments related to the Hot-Rolling and Processing Facility (HRPF) project, the company expects 2015 capital spending to be about $190 million, of which $100 million has been spent in the nine months ended Sep 30, 2015.

Allegheny currently holds a Zacks Rank #5 (Strong Sell).

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ALLEGHENY TECH (ATI): Free Stock Analysis Report

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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 Nasdaq, Inc.


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

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