Wednesday, specialty metals manufacturer Allegheny Technologies Inc. (ATI) reported a sharp decline in first-quarter profit primarily as a result of out-of-phase raw material surcharges and indices as well as a 38% decline in sales due to lower demand and decreased prices for products. Problems in the company's largest market commercial aerospace have impacted the quarter's results significantly. Results, however, came in above analysts' expectations as they estimated a loss. Following the report, Allegheny stock is trading up more than 10% on the NYSE.
Commenting on the results, Patrick Hassey, President and Chief Executive Officer said, "ATI remained profitable and continued to generate positive cash flow in spite of the most challenging global economic conditions we have ever seen and a significant negative impact from out-of-phase raw material surcharges and indices."
The Pittsburgh, Pennsylvania-based company posted a first quarter net income attributable to common stockholders of $5.9 million or $0.06 per share, compared to income attributable to common stockholders of $142.0 million or $1.40 per share in the same period last year.
Net income for the quarter was $5.3 million, compared to $143.7 million in the year-ago quarter.
On average, ten analysts polled by Thomson Reuters expected the company to report loss for the quarter of $0.01 per share. Analysts' estimates typically exclude special items.
Segment operating profit in the quarter was $55.9 million, compared to $240.0 million in the comparable period a year ago.
The company said that first quarter segment operating profit was negatively impacted by about $65 million of out-of-phase raw material surcharges and indices due primarily to the rapid decrease in the cost of most of our raw materials late last year.
In addition to surcharges, results were negatively impacted by global economic conditions and higher retirement benefit costs of $23.7 million, net of tax, resulting from the significant decline of equity and fixed income markets in 2008 and the resulting impact on the retirement plan asset valuations.
In the sequential fourth quarter, the company posted net income of $110.9 million or $1.15 per share, compared to $148.9 million or $1.45 per share in the prior year quarter.
Sales for the first quarter declined 38% to $831.6 million from $1.34 billion last year, as a result of lower selling prices and shipments.
Eight analysts expected the company to report revenues of $917.59 million for the quarter.
In the High Performance Metals segment, sales decreased 19% to $387.9 million, compared to the first quarter of previous year. Titanium and titanium alloys shipments decreased 21% primarily due to lower demand from commercial aerospace. Nickel-based and specialty alloys shipments, however, increased 5%. For titanium and titanium alloys average selling prices decreased 12% and for nickel-based and specialty alloys prices decreased 21% from last year, primarily due to lower raw materials indices as a result of lower raw materials costs, and a more competitive pricing environment. But average selling prices for exotic alloys increased 28% from the previous year.
In the Flat-Rolled Products segment, sales decreased 49% to $378.2 million from the previous year. Shipments of standard stainless products decreased 40%, while high-value products shipments declined 22%. Average transaction prices for all products, which include surcharges, were 25% lower due to a combination of reduced raw material surcharges and lower base prices for most products due to a more competitive pricing environment.
Sales of Engineered Products segment declined 43% to $65.5 million from the year-earlier period as demand for tungsten and tungsten carbide products, forged products, and cast products was lower.
In the previous quarter, Allegheny reported sales of $1.11 billion, compared to $1.27 billion a year ago.
Looking ahead, the company said it remains cautious about the second quarter and added that it expects second quarter earnings to be modestly better than the first quarter 2009. In addition, the company said it expects second quarter segment operating profit to be negatively impacted by about $20 million from out-of-phase surcharges and indices.
The company also said that it has achieved gross cost reductions of nearly $35 million in the first quarter and targets a minimum of $150 million in cost reduction in 2009.
Further, Allegheny noted that it continues to invest in manufacturing capabilities and expect 2009 self-funded capital investments to be in the range of $425 million to $450 million.
Among the company's peers, Carpenter Technology Corp. (CRS) is scheduled to report its third quarter results on April, 28. Analysts currently expect the company to earn $0.29 per share on revenues of $346.02 million.
ATI is currently trading at $30.62, up $3.04 or 11.02% on the NYSE, with a volume of 1.4 milion shares. In the past 52-week period, the stock has traded in the range of $15.00 - $84.95, with an average 3-month volume of 2.4 million shares.
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