ATI ATI Inc

Allegheny Technologies Incorporated (ATI) reported an increase in profit to $76.7 million or 70 cents per share (excluding acquisition related expenses of $12.7 million, net of tax) in the second quarter of 2011 from $36.4 million or 36 cents per share in the same quarter of 2010.

However, the profit was lower than the Zacks Consensus Estimate of 73 cents per share.

Sales in the quarter increased 28.5% to $1.35 billion, driven by higher shipments for most high-value products, higher raw material surcharges and increases in average base selling prices for many products. It was higher than the Zacks Consensus Estimate of $1.30 billion.

Segment operating profit increased to $173.4 million, or 12.8% of sales, from $117.3 million, or 11.2% of sales, in the second quarter of 2010.

Segment Results

Sales in the High Performance Metals segment surged 45% to $497.2 million. Segment operating profit increased to $92.9 million, or 18.7% of sales, from $67.3 million, or 19.7% of sales, in the second quarter of 2010. The increase in operating profit resulted from higher shipment volumes, improved product pricing and the benefits of gross cost reductions.

Sales in the Flat-Rolled Products segment increased 18.2% to $727.3 million, as a result of higher raw material surcharges and improved base-selling prices for most high-value products. Operating profit improved to $73.7 million, or 10.1% of sales, from $42.1 million, or 6.8% of sales, in the second quarter of 2010 due to increased high-value product shipments and higher base prices for most high-value products.

Sales in the Engineered Products segment soared 33.9% to $127.1 million, driven by higher demand and increased prices for tungsten-based and carbon alloy steel forging products. Segment operating profit was $6.8 million compared with $7.9 million in the second quarter of 2010.

Financials

Allegheny’s cash and cash equivalents were $367.8 million as of June 30, 2011, a decrease from $432.3 million as of December 31, 2010. Total debt was $1.65 billion, reflecting a net debt-to-capitalization ratio of 32.3% and total debt-top-capital ratio of 38.0% at June 30, 2011.

In the first half of 2011, cash flow used in operations was $72.0 million compared with $193.4 million in the year-ago period. The higher profit was offset by an investment of $455.1 million in managed working capital due to a higher level of business activity, higher raw material costs, and additional inventory on-hand to address operational maintenance outages. Capital expenditures remained flat at $97.7 million compared with $97.6 million a year ago.

Outlook

Allegheny expects revenues of $5.4 to $5.5 billion for full year 2011 compared with its previous guidance of $4.6 to $4.8 billion, and segment operating profit of 13% to 14% of revenues, excluding the impact of purchase inventory accounting charges.

The guidance is based on the strength in the company’s key global markets, improving shipments and higher base prices for many of its high-value products, the expectation of improved demand in the fourth quarter for its standard stainless products, and the view that certain raw material costs will moderate slightly or at least remain at current levels.

The company also anticipates capital expenditures to be approximately $275 to $300 million during the year, of which $98 million has been spent to date. It expects cash on-hand to increase in the third quarter as investment in managed working capital declines.

Over the next 3 to 5 years, Allegheny expects to continue to benefit from its new alloys and products, diversified global growth markets and differentiated product mix. Demand is expected to be strong for its mill products and highly engineered forged and cast components from the aerospace market. Strong growth is also expected from the oil and gas/chemical process industry for its titanium-based alloys, nickel-based alloys and specialty alloys, and tungsten products.

Allegheny Technologies, based in Pittsburgh, Pennsylvania, produces and sells specialty metals worldwide. Its primary competitor includes Carpenter Technology Corp. (CRS). The company currently retains a Zacks #3 Rank on its stock, which translates to a short-term rating of “Hold”.

 
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