Allegheny Technologies Inc. ATI recently announced certain rightsizing actions for its Flat Rolled Products (“FRP”) operations to combat the challenging business conditions for its commodity products. According to Rich Harshman, Chairman, President and CEO, these actions are the outcome of an extensive strategic review and analysis of the current and anticipated medium-term market conditions affecting Allegheny’s U.S. FRP operations. The moves are expected to return the segment to profitability as soon as possible.
The company declared particular actions to be taken, which include idling of the standard stainless melt shop and sheet finishing operations at the Midland, PA facility, anticipated to be completed in Jan 2016. The company also intends to idle the grain-oriented electrical steel (“GOES”) operations, including the Bagdad, PA facility, which is scheduled for completion by Apr 2016.
However, Midland and GOES operations would resume depending on business conditions in the future as well as the company’s capability to generate the maximum return on invested capital on products manufactured here.
Further, Allegheny is conducting an impairment review of affected long-lived assets in the FRP business, owing to the bumpy steel market conditions. Moreover, the company will provide the updated results before its fourth-quarter 2015 earnings release in Jan 2016.
These actions will help Allegheny to improve its focus on high-value product lines of the Hot-Rolling and Processing Facility, such as nickel-based and specialty alloys, titanium and titanium alloys, Precision Rolled Strip products and engineered strip. These products are part of key global markets like aerospace and defense, oil & gas/chemical and hydrocarbon processing industry, electrical energy, consumer electronics, and automotive.
Allegheny notified that market conditions for steel products have continuously deteriorated throughout 2015 and would further worsen during the fourth quarter. Global excess capacity resulted in unfairly traded imports into the U.S., mostly from China, during the first half of 2015, leading to record low base-selling prices.
These adverse conditions are expected to weigh on the company’s GOES business. Also, customers’ shift to high permeability GOES products would require significant capital investment by the company which is not possible given the current market scenario.
However, Rich Harshman notified that the company’s High Performance Materials and Components segment is well-poised to record profits over the next few years, starting 2016. Also, with the rightsizing actions announced, the company expects to generate profits from its FRP operations by the second half of 2016. As a result, Allegheny further anticipates cash flow from FRP operations in 2016 to adequately fund its capital expenditures for the year.
The company’s shares fell around 4.7% to close at $12.94 on Dec 11.
Allegheny currently carries a Zacks Rank #3 (Hold).
Better-ranked companies in the basic materials sector include Grupo Simec S.A.B. de C.V. SIM, Harmony Gold Mining Company Limited HMY and Richmont Mines Inc. RIC, all carrying a Zacks Rank #2 (Buy).
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