Allegheny Technologies Inc. ATI is set to release its first-quarter 2015 results before the market opens on Apr 21.
Allegheny has missed the Zacks Consensus Estimate in one of the trailing four quarters, beat the same in two quarters and met the mark in one with an average positive surprise of 55.56%. The Zacks Consensus Estimate for Allegheny for the first quarter has dropped by a penny to 11 cents per share in the last 60 days.
Let’s see how things are shaping up for this announcement.
Factors to Watch For
Allegheny’s earnings for fourth-quarter 2014 came ahead of the Zacks Consensus Estimate. However, consolidated profit (as reported), slid year over year. Sales rose year over year on gains across the board but missed the Zacks Consensus Estimate.
Allegheny continues to see certain challenges in its core Flat-Rolled Products segment. Weak demand and increased Asian imports are putting pressure on stainless steel sheet plate prices. Demand for flat-rolled products in industrial markets also remains somewhat weak.
Moreover, profitability in the Flat-Rolled Products division is expected to remain affected by costs associated with the start-up of the HRPF project. The company sees roughly $5 million in HRPF start-up expenses for first-quarter 2015. Moreover, premium quality titanium sponge qualification costs associated with the Rowley facility are expected to impact operating profit in the first half of 2015.
Sluggish global economic recovery coupled with continued high unemployment levels may negatively impact short-term consumer and business confidence. Demand for certain high-value products in some of the key end-markets remains subdued as many customers are being cautious and keeping inventories lean. Moreover, lower oil prices have created an uncertain demand environment for the company’s products in drilling applications in the oil and gas industry (10% of total sales in 2014). The company expects its sales for drilling applications to decrease 20% to 25% year over year in 2015.
However, Allegheny is benefiting from the secular shift to new titanium-intensive airframes, new energy efficient engines and an expanding aftermarket. Strong growth in demand for many products is expected from the oil and gas/chemical process industry. Global demand is also expected to grow considerably from the electrical energy market driven by increased need for natural gas turbines, nuclear applications, alternative energy applications and from the building and rebuilding of transmission infrastructure. Medical market demand for titanium, zirconium, specialty, and niobium alloys is expected to continue to grow significantly.
Allegheny expects sustainable growth and free cash flow generation. Moreover, the company perceives some long-term agreements will boost growth and lead to improved capacity use at the mill products, forging, and titanium investment casting facilities, particularly from 2016 through 2018, going to the next decade.
Earnings Whispers
Our proven model shows that Allegheny is likely to miss earnings estimates this quarter.
Negative Zacks ESP: The Earnings ESP for Allegheny is -27.27% – the difference between the Most Accurate estimate of 8 cents and the Zacks Consensus Estimate of 11 cents.
Zacks Rank #4 (Sell): Allegheny’s Zacks Rank #4, when combined with a negative ESP, indicates a likely earnings miss. We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks That Warrant a Look
Here are some companies in the basic materials sector you may want to consider, as our model shows they have the right combination of elements to post an earnings beat this quarter:
Agrium Inc. AGU has an earnings ESP of +6.06% and a Zacks Rank #3 (Hold).
CF Industries Holdings, Inc. CF has an earnings ESP of +4.1% and a Zacks Rank #3.
Thompson Creek Metals Company Inc. TC has an earnings ESP of +50% and a Zacks Rank #3.
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