Lower-than-Expected Loss at Allegheny - Analyst Blog
January 22 2014 - 10:50AM
Zacks
Allegheny Technologies Inc. (ATI) posted loss
from continuing operations of $83.8 million or 79 cents per share
for fourth-quarter 2013 compared with a profit of $16 million or 15
cents per share recorded a year ago.
On a consolidated basis, the Pennsylvania-based specialty steel
company raked in net income of $173.4 million or $1.62 per share in
the quarter, up manifold from a profit of $10.5 million or 10 cents
per share registered in the year-ago quarter.
Consolidated net income includes gain (of $261.4 million, post tax)
on sale of the company’s tungsten materials business to Latrobe,
PA-based wear-resistant products company Kennametal
Inc. (KMT).
Barring charges associated with restructuring measures and
inventory valuation adjustments of $75.1 million (post-tax), loss
from continuing operations was 8 cents per share, narrower than the
Zacks Consensus Estimate of a loss of 19 cents.
For 2013, loss from continuing operations was $98.8 million, or 93
cents per share compared with an income of $150.5 million or $1.36
per share recorded a year ago. Excluding one-time items, loss from
continuing operations was 22 cents, also lower than the Zacks
Consensus Estimate of a loss of 33 cents.
Revenues for the fourth quarter slipped 10% year over year to
$915.3 million, missing the Zacks Consensus Estimate of $1,031
million. Revenues were hurt by soft demand across several end
markets. Allegheny also witnessed lower pricing for many of its
products and a decline in raw materials surcharges in the
quarter.
For the full year, revenues fell roughly 13% year over year to
$4,043.5 million, also falling short of the Zacks Consensus
Estimate of $4,324 million.
Operating profit slid roughly 51% year over year to $44.6 million
in the quarter with operating margin contracting to 4.9% from 8.9%
a year ago. Lower shipments of high value and standard products
coupled with lower base prices led to the decline in operating
profit. The impact of higher raw material costs for products with
longer manufacturing cycle times not aligned with lower raw
material surcharges also contributed to the decline.
Segment Review
Revenues from the High Performance Metals segment fell 17% year
over year to $436.7 million in the quarter due to lower mill
product shipments and a decline in sales of precision forged and
cast components, hurt by weaker demand from the jet engine,
construction and mining, nuclear energy, and oil and gas markets.
Lower pricing also affected sales.
Flat-Rolled Products segment sales went down 4% to $478.6 million
on account of reduced raw material surcharges and lower
base-selling pricing. The company saw lower demand on a sequential
basis across oil and gas/chemical process industry and electrical
energy markets.
Shipments of high-value products rose 10% on higher shipments of
Precision Rolled Strip products, nickel-based alloys and titanium.
Shipments of standard stainless products rose 6%. Average selling
prices for high-value and standard stainless products fell 8% and
13%, respectively.
Financial Position
Allegheny ended 2013 with cash and cash equivalents of $1,026.8
million, a more than three-fold year over year rise. Long-term debt
increased roughly 4% year over year to $1,527.4 million. Total
debt-to-total capital ratio was 40.2% as of Dec 31, 2013, up from
37.4% as of Dec 31, 2012. Operating cash flow for the full year was
$368.4 million, including $141 million for the fourth quarter.
Outlook
Allegheny, which is among the prominent players in the U.S.
specialty steel industry along with Carpenter
Technology (CRS), and Precision Castparts
(PCP), expects business conditions to gradually improve through
2014. However, it sees modest recovery in global economic
conditions.
Allegheny anticipates market conditions to remain favorable across
many of its major markets over the next 2-5 years. It expects
continued increase in aerospace build rates. The company also sees
modest growth in demand for jet engine spare parts through
2014.
Allegheny expects capital spending on global oil and gas
exploration and production forecasts project to remain strong and
sees modest growth in demand for its high performance specialty
materials from the medical market. Moreover, demand from the
electrical energy market is expected to remain flat for both power
generation and power distribution in the short-term.
Allegheny expects its High Performance Metals unit to benefit from
growing demand from many of its major global markets and higher
demand for its new products, notably from the aerospace market.
This will be partly offset by sustained weakness in demand from the
nuclear energy market.
For the Flat-Rolled Products division, the company expects
improving demand in 2014 for its high-value products, in
particular, nickel-based alloys and specialty alloys and Precision
Rolled Strip products. The new Hot-Rolling and Processing Facility
(HRPF) is expected to cut costs, lower cycle time and incite
revenue gains staring in 2015. The commissioning of the facility
will take most of this year and is expected to result in start-up
costs of roughly $30 million to $35 million (pre-tax) in 2014.
Allegheny anticipates capital expenditures for 2014 to be roughly
$300 million, down $313 million from 2013. The company remains
focused on cost optimization and is accelerating its cost reduction
efforts. Allegheny, through this move, was successful in gross cost
reductions of $141.2 million in 2013. The company is targeting $100
million in new gross cost reductions this year.
Allegheny currently retains a Zacks Rank #5 (Strong Sell).
ALLEGHENY TECH (ATI): Free Stock Analysis Report
CARPENTER TECH (CRS): Free Stock Analysis Report
KENNAMETAL INC (KMT): Free Stock Analysis Report
PRECISION CASTP (PCP): Free Stock Analysis Report
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