Keeping Allegheny at Underperform - Analyst Blog
December 04 2012 - 11:20AM
Zacks
We are retaining our Underperform
recommendation on Allegheny Technologies (ATI)
following its disappointing third quarter results. Earnings of 32
cents a share fell well short of the Zacks Consensus Estimate of 39
cents. Revenues sagged nearly 10% year over year to $1,220.5
million, also missing the Zacks Consensus Estimate of $1,297
million.
Allegheny saw a 43% decline in its profit as sluggish economic
conditions led to weak demand for its products in the quarter. The
Pennsylvania-based company cut its sales forecast for 2012
factoring in the current soft macroeconomic backdrop, sustained
weak demand and aggressive inventory managements by its
customers.
Allegheny, which competes with Carpenter Technology
Corp. (CRS) among others, is one of the world’s largest
and most diverse specialty metals companies. It is a significant
supplier to commercial aircraft engine manufacturers and is also
expanding its footprint in the commercial airframes market.
Allegheny is expected to benefit from its new alloys and products,
diversified global growth markets and differentiated product
mix.
However, the company is contending with a soft economy and raw
material cost pressures. Moreover, reduced raw material surcharges
and low base prices of standard stainless products are hurting the
results of its key Flat-Rolled Products division. Revenues from
this segment slipped nearly 19% in the third quarter. Delays in
some large oil and gases projects affected the segment’s results in
the quarter.
Demand for the company’s standard stainless products has been hit
by rapidly falling raw material surcharges, resulting in customers
delaying purchases. In addition, the same factors appear to be
influencing short-term demand for some high-value products from
some key end-markets as many customers are being cautious and
keeping inventories lean.
Moreover, the soft U.S. and European economies remain as overhangs.
The company envisions the business environment to remain
challenging in the fourth quarter and its results to be lower
sequentially. The uncertain economic environment given the concerns
surrounding the U.S. fiscal cliff, euro zone debt crisis and
slowdown in China is expected to weigh on the company’s
results in the fourth quarter.
Our recommendation on Allegheny is in sync with a short-term Zacks
#5 Rank (Strong Sell).
ALLEGHENY TECH (ATI): Free Stock Analysis Report
CARPENTER TECH (CRS): Free Stock Analysis Report
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