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Allegheny (ATI) Q4 Earnings Trail, Revenues Top Estimates

Anindya Barman

Allegheny Technologies Inc. ATI logged net income of $41.1 million or 30 cents per share in fourth-quarter 2018, a significant improvement from a profit of $1.7 million or a penny per share in the prior-year quarter. Earnings in the year-ago quarter was hit by debt extinguishment charges of $37 million.

Earnings per share for the reported quarter, however, missed the Zacks Consensus Estimate of 33 cents.

The company reported revenues of $1,037.9 million in the quarter, up 14.1% year over year. Sales surpassed the Zacks Consensus Estimate of $981.4 million.

Allegheny Technologies Incorporated Price, Consensus and EPS Surprise


Allegheny Technologies Incorporated Price, Consensus and EPS Surprise | Allegheny Technologies Incorporated Quote

FY18 Results

For 2018, the company registered a profit of $222.4 million or $1.61 per share, compared with a loss of $91.9 million or 83 cents per share a year ago.

Revenues climbed 15% year over year to $4,046.6 million for the full year. The company witnessed strong demand for forgings and components for the aerospace and defense markets as well as nickel-based and specialty alloy products.

Segment Highlights

Revenues at the High Performance Materials & Components (HPMC) segment went up roughly 15% year over year to $596.1 million driven by strong growth in sales of next-generation jet engine products that jumped more than 50% year over year. The company’s sales to the aerospace and defense markets went up 15% year over year.

Operating profit rose around 16% year over year to $76 million in the reported quarter. The improvement was mainly driven by better product mix of next-generation forgings, components and nickel-based alloys for the aero engine market, partly masked by higher operating costs including major maintenance and increased energy costs across certain facilities.

The Flat-Rolled Products (FRP) segment’s sales rose 13% year over year to $441.8 million. Sales to the aerospace & defense and automotive markets rose 62% and 18% year over year, respectively. This was partly offset by a roughly 5% decline in sales to oil & gas, FRP’s largest end market.

The FRP segment’s operating profit came in at $11.3 million, down around 50% year over year, hurt by price declines in several key raw materials, particularly ferrochrome and nickel.

Financial Position

Allegheny ended 2018 with cash and cash equivalents of $382 million, up nearly three-fold year over year. Long-term debt was essentially flat year over year at $1,535.5 million.

The company generated operating cash flows of $392.8 million in 2018. Cash from operating activities for the fourth quarter was $276 million.


Moving ahead, Allegheny expects year-over-year growth in operating margin and revenues at the HPMC division in 2019 through focused growth in highly-differentiated materials and technologies, mainly for the jet engine market. The company targets high-single-digit revenue growth and segment operating profit margin improvement of 150 basis points year over year in 2019 including the unfavorable impact of higher retirement benefit expense of around $8 million.

At the FRP segment, the company expects significant price declines in several key raw materials to hurt its first quarter 2019 results due to the mismatch between input costs and the surcharge index pricing mechanism.

Allegheny envisions results for the FRP segment for full-year 2019 to be in line with 2018. Continued benefits from higher Hot-Rolling and Processing Facility (“HRPF”) utilization rates and sales growth of high-value products are forecast to be offset by the short-term raw material costs headwinds and higher retirement benefit expense (of around $23 million) in the segment.
The company also expects strong cash flow generation from operations in 2019. It targets free cash flow of at least $290 million for the year, excluding pension plan contributions.

Price Performance

Shares of Allegheny have lost 14% over a year, outperforming the industry’s fall of 16%.


Zacks Rank & Stocks to Consider
Allegheny currently carries a Zacks Rank #3 (Hold).

Better-ranked stocks worth considering in the basic materials space include Ingevity Corporation NGVT, Quaker Chemical Corporation KWR and Israel Chemicals Ltd. ICL.

Ingevity has an expected earnings growth rate of 21.5% for the current year and carries a Zacks Rank #1 (Strong Buy). Its shares have gained 20% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

Quaker Chemical has an expected earnings growth rate of 21.1% for the current year and carries a Zacks Rank #2 (Buy). Its shares have gained 24% in the past year.

Israel Chemicals has an expected earnings growth rate of 5.4% for the current year and carries a Zacks Rank #2. The company’s shares have rallied 32% over the past year.

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