CRS Carpenter Technology Corp

We are maintaining our Neutral recommendation on diversified specialty materials producer Allegheny Technologies (ATI). Its fourth-quarter 2011 earnings per share of 31 cents missed the Zacks Consensus Estimate of 54 cents. However, profit (as reported) more than doubled year over year to $31.7 million.

Revenues increased at a healthy double-digit clip to $1.25 billion, driven by increased shipments for most high-value products, higher raw material surcharges and increase in the average base selling prices for many products. However, sales missed the Zacks Consensus Estimate of $1.31 billion.

Moving ahead, Allegheny expects revenue growth to be at least 10% year over year in 2012. The company expects to continue to benefit from its new alloys and products, diversified global growth markets and differentiated product mix.

Pennsylvania-based Allegheny Technologies is one of the world’s largest and most diverse specialty metals companies. The company’s primary competitor is Carpenter Technology Corp. (CRS).

Allegheny is in the process of finishing several self-funded capital projects to help augment organic growth and its cost structure. The company’s Rowley facility is making good progress with the standard grade qualification program and is expected to produce more sponge at lesser costs in 2012 compared with 2011.

Allegheny's diversified footprint, focus on growing markets, new product/technology development initiative and sustained focus on cost containment strongly place it for future growth. The company is poised to benefit, in 2012, from strong demand across aerospace, oil, electrical energy, gas/chemical process and medical industries.

Moreover, Allegheny continues to improve its cost structure with its gross cost reduction initiative. The company achieved gross cost reductions of nearly $124 million in 2011, thereby exceeding its target of $100 million.

However, Allegheny remains concerned about the soft U.S. and European economies and believes the continued high unemployment levels will impact short-term consumer and business confidence.

Moreover, the company is contending with cost-pressures associated with high raw material costs. Lower volumes and a decline in nickel prices may also impact the results from the company’s core Flat Rolled Products segment. Allegheny currently retains a short-term Zacks #4 Rank (Sell).

 
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