ATI ATI Inc

Allegheny Technologies Inc. (ATI) reported an increase in profit to $70.6 million or 63 cents per share (excluding acquisition related expenses of $8.3 million, net of tax) in the third quarter of 2011 from $1.0 million or 1 cent per share in the same quarter of 2010.

Results exceeded the Zacks Consensus Estimate of 61 cents per share.

Sales in the quarter increased 28% 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. However, sales were lower than the Zacks Consensus Estimate of $1.39 billion.

Segment operating profit surged 157% to $161.8 million, or 12.0% of sales, from $63.0 million, or 6.0% of sales, in the third quarter of 2010.

Segment Results

Sales in the High Performance Metals segment surged 55% to $534.7 million. Segment operating profit increased to $95.7 million, or 17.9% of sales, from $72.0 million, or 20.9% of sales, in the third 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 11.4% to $689.6 million, as a result of improved base-selling prices for most high-value products. Operating profit improved to $58.8 million, or 8.5% of sales, compared with a loss $11.8 million, in the third 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 34.8% to $128.3 million, driven by higher demand and increased prices for tungsten-based and carbon alloy steel forging products. Segment operating profit was $7.3 million compared with $2.8 million in the third quarter of 2010.

Financials

Allegheny’s cash on hand was $431.5 million as of September 30, 2011, a decrease of $0.8 million as of December 31, 2010.

Cash flow provided by operations for the first nine months of 2011 was $107.5 million. Increased profitability was partially offset by an investment of $390.3 million in managed working capital due to a higher level of business.

Net debt as a percentage of total capitalization was 30.3% at the end of the third quarter 2011 compared with 23.6% at the end of 2010. Total debt to total capital was 37.2% as of September 30, 2011, compared with 34.3% at the end of 2010.

Outlook

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 #4 Rank on its stock, which translates to a short-term rating of Sell.
 
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