Specialty metals producer Allegheny Technologies Inc. (ATI) on Wednesday reported a loss for the second quarter compared to a profit last year, hurt by charges as well as reduced global demand for metals and lower prices. However, adjusted earnings per share came in line with analysts' expectations.
Sales for the quarter more than halved and missed consensus estimate, with high double-digit drop in lower sales recorded across all the segments. The company also warned of the third quarter remaining challenging, and anticipates earnings for the third quarter to be at or near breakeven. Following the announcement, the company's stock is trading down nearly 19%.
In a statement, chairman, president and chief executive officer, Patrick Hassey said, "ATI was profitable in the second quarter, before special charges, and ended the quarter with significant cash on hand and an improved balance sheet. We saw signs of stabilization in some of our markets during the quarter, but few indications of meaningful recovery."
Second Quarter Results
The Pittsburgh, Pennsylvania-based company reported a net loss of $13.4 million or $0.14 per share for the second quarter, compared to net income of $168.9 million or $1.66 per share in the prior-year quarter.
The results for the latest quarter include non-recurring after-tax charges of $17.0 million or $0.17 per share related to the retirement of $183.3 million of debt and the tax consequences of the $350 million voluntary pension contribution.
Excluding these special items, adjusted net income for the current quarter was $3.6 million or $0.03 per share. On average, eight analysts polled by Thomson Reuters expected the company to report earnings for the quarter of $0.03 per share. Analysts' estimates typically exclude special items.
Sales for the quarter more than halved to $710.0 million from $1.46 billion in the same quarter last year, and missed seven Wall Street analysts' consensus estimate of $816.58 million. The plunge in sales was attributed to lower raw material surcharges and indices, reduced base selling prices for most products, and lower shipments.
Among Allegheny's peers, Wyomissing, Pennsylvania-based Carpenter Technology Corp. (CRS) is slated to report financial results for the fourth quarter on July 30, 2009. Analysts expect the company to report a loss of $0.27 per share for the quarter, on revenues of $290.53 million.
Segmental Details
Direct international sales represented 32.5% of total sales, compared to 27% of sales in the same quarter last year, benefiting from the company's global reach. Compared to the second quarter 2008, sales dropped 36% in the high performance metals segment, plunged 60% in the Flat-rolled products segment, and was down 56% in the engineered products segment.
Allegheny's higher performance metals segment sales for the second quarter dropped 36% to $320.5 million from $504.5 million in the prior-year quarter. Shipments decreased 23% for titanium and titanium alloys as well as 29% for nickel-based and specially alloys. Average selling prices also declined 19% for titanium and titanium alloys and 29% for nickel-based and specialty alloys. However, Average selling prices for exotic alloys increased 20% due to increased demand for certain products. Segment operating profit was $41.0 million, or 12.8% of sales, sharply down from $150.8 million or 29.9% of sales, in the prior-year quarter, due to lower shipments and selling prices for most of the company's products.
Flat-rolled products segment sales totaled $335.2 million, down 60% from $834.1 million in the year-ago quarter, due to lower shipments, and reduced raw material surcharges and lower base-selling prices for most products. Shipments of standard stainless products dropped 34%, while total high-value products shipments decreased 37%. Average transaction prices for all products, which include surcharges, were 39% lower. However, segment operating profit was $22.3 million, or 6.7% of sales, lower than $113.6 million or 13.6% of sales, in the same quarter last year.
Sales for the engineered products segment dropped 56% from last year to $54.3 million. The segment reported a operating loss of $9.4 million, compared to operating profit of $11.0 million last year, due to lower shipments, reduced selling prices, and costs associated with workforce reductions and idle facilities.
The company's total segment operating profit for the second quarter was $53.9 million or 7.6% of sales, sharply lower than $275.4 million or 18.8% of sales, in the prior-year quarter.
Half Yearly Highlights
For the first six months, Allegheny reported a net loss of $7.5 million or $0.08 per share, compared to net income of $310.9 million or $3.06 per share in the prior-year period. Excluding special items, adjusted net income for the current period was $9.5 million or $0.09 per share.
Sales for the year-to-date period plunged to $1.54 billion from $2.80 billion in the same period last year.
Looking Ahead.........
"We expect business conditions in the third quarter to remain challenging. While we see some signs of stabilization in a few markets, in general, demand remains low, the pricing environment is challenging, and visibility is limited. We expect ATI's third quarter 2009 earnings to be at or near break even. We expect to end the third quarter 2009 with a significant amount of cash on hand while continuing to self fund our strategic capital investments'" Hassey added.
For the third quarter, Allegheny anticipates earnings to be at or near break even. Analysts expect the company to report earnings of $0.24 per share for the third quarter.
The company also said it expects to begin production at its new premium-grade titanium sponge facility and the new titanium and superalloy forging facility by the end of the third quarter 2009.
Stock Quotes
In Wednesday's regular trading session, ATI is currently trading at $28.22, down $6.57 or 18.88% on a volume of 5.17 million shares. The stock has been trading in a broad range of $15.00 to $56.25 in the past 52 weeks.
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