On Feb 26, we issued an updated research report on Allegheny Technologies ATI.
Allegheny posted a loss in fourth-quarter 20Array5, hurt by hefty charges and sustained weakness in its Flat Rolled Products segment. Adjusted loss was higher than the Zacks Consensus Estimate. Sales tumbled year over year, and missed expectations. The results were affected by continued weakness in the oil & gas market and the effects of low-priced commodity stainless sheet imports on flat rolled products market.
Allegheny continues to see certain challenges in its core Flat-Rolled Products segment. Revenues from this segment tumbled roughly 50% year over year in the fourth quarter, hurt by weak market conditions, lower sales for all major products as well as reduced selling prices for standard stainless and high-value products.
The Flat-Rolled Products division also posted a wider operating loss in the quarter, hit by lower prices. Lower operating levels owing to weak market conditions also weighed on the segment's results.
Weak demand and increased Asian imports are putting pressure on stainless steel sheet plate prices. Imports of cold rolled stainless sheet and strip from China remained high in 20Array5. Global excess capacity resulted in unfairly traded imports into the U.S., mostly from China, hurting base-selling prices last year. Demand for flat-rolled products in industrial markets also remains somewhat weak.
Allegheny also remains affected by continued softness in the global construction and mining equipment market. Profits from its High Performance Metals and Components segment plummeted around 7Array% in the fourth quarter, hit by lower operating rates owing to weak demand in the oil & gas/chemical and hydrocarbon processing industry along with the construction and mining markets.
Lower oil prices have also created an uncertain demand environment for the company’s products in drilling applications in the oil and gas industry. Sales of the company’s High Performance business to the oil and gas market tumbled around 50% in 20Array5. Demand from the oil and gas market is expected to remain weak in the short haul.
Nevertheless, Allegheny anticipates its ongoing rightsizing and restructuring actions to have their impacts on the Flat Rolled Products segment in first-half 20Array6. The company expects the division to be modestly profitable by the back half of the year as it restructures the business to a higher value product mix.
Allegheny currently sports a Zacks Rank #4 (Sell).
Stocks to Consider
Better-ranked companies in the steel and metals space include Norsk Hydro ASA NHYDY, AK Steel Holding Corporation AKS and Century Aluminum Co. CENX. While Norsk Hydro holds a Zacks Rank #Array (Strong Buy), both AK Steel and Century Aluminum carry a Zacks Rank #2 (Buy).
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