What's in Store for Allegheny (ATI) this Earnings Season?
Allegheny Technologies Inc. ATI is set to release its fourth-quarter 2015 results before the opening bell on Jan 26.
In the last quarter, the company had delivered a positive earnings surprise of roughly 3.3%. However, sales fell 18.6% from the sequentially prior quarter due to a sales decline in both the High Performance Materials and Components segment and the Flat Rolled Products segment. Further, sales failed to meet expectations.
Allegheny has delivered an average negative surprise of 0.14% over the trailing four quarters. The Zacks Consensus Estimate for the fourth quarter is pegged at a loss of 39 cents per share.
Let’s see how things are shaping up for this announcement.
Factors to Consider
Allegheny, a diversified specialty materials producer, recently stated that its fourth-quarter 2015 results will incorporate pre-tax charges of around $267 million, including non-cash long-lived asset impairment charges of nearly $181 million for its Flat Rolled Products (“FRP”) business, and $76 million of non-cash inventory charges.
In Dec 2015, Allegheny announced certain rightsizing actions for its FRP operations to combat the challenging business conditions for its commodity products. As announced earlier, these actions include idling the standard stainless melt shop and sheet finishing operations at the Midland, PA facility, which is anticipated to be completed in Jan 2016. Allegheny is also idling grain-oriented electrical steel operations, including the Bagdad, PA facility, which should be completed by Apr 2016.
Additionally, Allegheny is conducting an impairment review of affected long-lived assets in the FRP business, owing to choppy steel market conditions. Weak demand and increased Chinese imports are weighing on stainless steel sheet plate prices. Demand for flat-rolled products in industrial markets also remains somewhat weak.
Moreover, lower oil prices are expected to hurt demand for Allegheny's products in drilling applications in the oil and gas market in the short haul. Results from Allegheny’s High Performance Metals and Components segment also remain affected by low operating rates at its Rowley titanium sponge facility.
Earnings Whispers
Our proven model does not conclusively show that Allegheny is likely to beat estimates this quarter. This is because the stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here, as you will see below:
Zacks ESP: Earnings ESP for Allegheny is currently pegged at +12.82%. This is because the Most Accurate estimate is pegged at a loss of 34 cents, while the Zacks Consensus Estimate stands at a loss of 39 cents.
Zacks Rank: Allegheny carries a Zacks Rank #5 (Strong Sell). We caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks that Warrant a Look
Here are some companies in the basic materials sector you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:
Franco-Nevada Corporation FNV has an Earnings ESP of +8.33% and a Zacks Rank #3 (Hold).
Agrium Inc. AGU has an Earnings ESP of +4.86% and a Zacks Rank #3.
Cliffs Natural Resources Inc. CLF has an Earnings ESP of +3.45% and a Zacks Rank #3.
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