Allegheny Technologies Inc. ATI posted earnings from continuing operations of 9 cents per share in first-quarter 2015, compared with a loss from continuing operations of 17 cents per share recorded a year ago. Earnings missed the Zacks Consensus Estimate of 10 cents.
Revenues for the fourth quarter rose 14% year over year to $1,125.5 million, and surpassed the Zacks Consensus Estimate of $1,055 million. Sales increased 7% from the sequentially prior quarter on an 8% rise in sales in the High Performance Materials and Components segment.
Higher shipments of both high-value and standard products and better selling prices for high-value products led to a 6% sequential increase in sales in the Flat Rolled Products segment.
Operating profit for first-quarter 2015 was $83.8 million, compared with $43.5 million in the year-ago quarter. Operating profit increased 25.1% from the sequentially prior quarter. Results for the reported quarter include $12.4 million of Hot-Rolling and Processing Facility (HRPF) start-up and Rowley PQ qualification costs.
Segment Review
Revenues from the High Performance Metals and Components segment increased 12% year over year to $542.8 million in the first quarter on the back of higher mill product shipments. While operating profit improved year over year, the segment remains affected by lower operating rates at the company’s Rowley UT titanium sponge facility and by the strategic decision to use ATI-produced titanium sponge rather than lower cost titanium scrap to manufacture certain titanium products.
The Flat Rolled Products’ segment sales went up 16% to $582.7 million mainly on the back of higher shipments and selling prices for both high-value and standard products. Shipments of high-value products increased 5% year over year. Shipments of standard stainless products rose 3%. Average selling prices rose 16% for high-value products and 5% for standard stainless products.
Financial Position
Allegheny’s cash and cash equivalents as of Mar 31, 2015, stood at $238 million, compared with $837.7 million as of Mar 31, 2014, down around 71.6%. Long-term debt decreased 1.2% year over year to $1,509.1 million.
Total debt-to-total capital ratio was 37% as of Mar 31, 2015, down from 40.4% as of Mar 31, 2014. Cash flow from operations for the first quarter was $12 million, including $79.4 million of additional managed working capital due to higher business activity levels.
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, expects higher volume and a improved product mix in second-quarter 2015 as it starts to realize the range of capabilities of the Hot-Rolling and Processing Facility (HRPF) in the Flat Rolled Products segment.
During the second quarter, the company expects to ship more 60 inch wide stainless, auto-exhaust alloys, and 48 inch wide nickel-based alloy coils compared with the first quarter.
The selling prices and demand for its standard stainless products are expected to remain uncertain until raw material prices stabilize. Nickel plate shipments for the large oil and gas pipeline project are expected to support second quarter results.
Trailing HRPF start-up costs of around $3 million are forecast to be incurred in the second quarter. The company continues to expect fourth quarter 2015 operating profit to benefit at an annualized rate of about $150 million, versus 2014, which includes the elimination of startup costs.
In its High Performance Materials & Components segment, the company sees demand for its mill products, forgings and investment castings to rise throughout 2015 driven by strong demand from airframe and jet engine OEMs. The company expects demand from the oil and gas market, primarily for exploration applications to remain weak for the balance of 2015. Allegheny expects segment results to be impacted by low operating rates at the Rowley facility throughout 2015 as it steadily increases titanium sponge production throughout the year.
For the long term, Allegheny expects to align and integrate its specialty materials businesses, enhance the competitive position, and continuously improve the cost structure and operating efficiencies of its businesses to achieve long-term sustainable profitable growth.
Allegheny expects 2015 capital expenditures to be around $290 million, of which $23 million was spent in the first quarter. The company remains focused on reducing costs and targets a minimum of $100 million in new gross cost reductions in 2015.
Allegheny currently holds a Zacks Rank #4 (Sell).
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