TIE reported that average mill prices for the second quarter were $17.93 per pound and rising. Though I could not find it in the press release, BZ reported that ATI's average mill prices were in the range of $25 per pound for third quarter.
In RTI's case, the price for the quarter was $15.04, up twenty cents (cents, not percent) from last quarter.
The excuse they trumpted was that most of RTI's mill products are not sold to third parties buy are the subject of intercompany sales to the Fabrication group, which will perform addional work before the product is eventually sold to a third party at an even higher price. That process takes time, so it will take time to see it in the bottom line results. Fair enough. Makes sense.
But hold on a minute. Rupert said that 50% to two thirds of mill product is sold between RTI affiliates. Well, what about the other 50%/one third??? Shouldn't that account for more than an overall increase of a measly 20 cents over last quarter? If ATI is reporting mill product market prices of $25, and half of RTI's mill product shipments are intercompany at $15 and the other half are at market prices of $25, shouldn't that average out to $20?
I am not very good at math, but it seems to be the company's excuse falls flat.
Of course, they can always fall back on the excuse that it really depends on the product mix, and they trumpet that excuse fromt ime to time, including last quarter, when they claimed their mill product price was lower because thy increased shipments of low end products. But why in the world would management increase shipments of low end products when the companies main weakness is the inability to produce its own sponge. If you have a limited supply of sponge, you don't use it to ship low margin, low end products; you use it for the highest margin products you can produce.
No matter how you add it up, these guys have no idea how to run the business IMO.
I listened to the call as well and think RTI is in trouble (this is the last time I will say I told you so).
Here's my take on the call: 1. Management have little to no credibility on when the top line will get better. The guidance they gave was pathetic. 20% increase, c'mon. Heck, their boy Olin (who finally appears to be realizing the sham of RTI which he has been in love with forever), was even getting noticeably aggitated on lack of guidance and lack of business results. Listen to the banter about peer group comparisons...here's the quote from Rupert, "wah, wah, wah.....we aren't the peer group". Great answer for getting your butt kicked Rupert. 2. When Rupert was asked, repeatedly, for some sort of guidance for FY06 (other then Rupert's standard answer of "...we'll get better every qtr" he had zero answers. Olin finally got an answer on the 2nd to last question that Rupert took which he gave 20% top line. 3. Rupert was getting upset with all of the questions on the business performance. Does he not realize that a top line revenue drop for the company and 4% OM in their crown jewel "value added business", Fabrication and Distribution unit is terrible. Rupert, wake up bud, your management teams jobs should be on the line. Don't worry, I'm sure your board is loaded with friends, so you'll be fine. 4. More on the OM side, which to me is the ultimate problem. F/D is making 4%. ATI's comparison group was 27.1%. Rupert's GOAL for the F/D side for OM was getting to DOUBLE DIGITS. DOUBLE DIGITS, when your competiion is in the 20% range right NOW???? Do I need to remind you that RTI's strategy is VALUE ADDED titanium (which means higher margins). I don't see it. This is a problem with execution, folks. 5. Pricing. RTI's mill pricing was $15/lb. ATI's pricing for mill was $25.49 and TIE's will be way over $15 for 3Q. Titanium scrap is selling for $12...
Here's what I think is going on. One analyst I think finally picked up on RTI's top line business (which of course RTI doesn't break out or report on) issue...they have small involvement in commercial aerospace and were heavily reliant on ferro titanium business...which is down (RTI said it will be a little better moving forward, but nothing like what it was in 1H05).
Since they are getting little aero business they focused on oil and gas, but unfortunately that business is just starting and as the company admits "lumpy" (it's a few large contracts, which seem to push, and you are dealing with large beaucracies in the oil industry). RTI can't commit to FY06, because they don't know when or if these contracts will come through. Add this to their butt kicking in commercial aerospace (oh, btw RTI depends much on military spend and guess what's being discussed as budgetary cuts in the federal gov't) and you got one sad story.
Good luck RTI shareholders. The party is happening over at TIE, don't think you can continue to afford to miss it.
PS Olin, if you read this, I'm assuming this will start showing in your cruddy reports. If you need help, email me. I probably can save your job.
1. Why are rising scrap costs not passed through to end customers? Is RTI saddled with fixed priced contracts on the sales side, while facing rising prices on the raw materials front?
2. The CFO's a pathetic moron. Weak assed excuses offered up for the piss poor timing of the earnings release. Inability to quantify the impact of the BA strike. Little detail offered up in explanations for shortfall to expectations. Picking fights with analysts on the call. The guy needs his sorry ass kicked out the door.
And that's only for starters. The call was a huge disappointment. Huge.
Here's another dumb assed comment from the CFO on the call that made no sense. When asked what 2006 looked like he indicated that it was sold out. There's no room to do more business. Then, when asked what he'd do if a major customer came to RTI wanting to do more business, he goes the opposite direction. The moronic CFO then says they have plenty of capacity to do more work. They just need more raw materials. Huh? Which is it. Sold out? Or plenty of capacity?
How is it that morons come to run our public companies?