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Allegheny Technologies (ATI) Down 6.9% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

It has been about a month since the last earnings report for Allegheny Technologies (ATI). Shares have lost about 6.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Allegheny Technologies due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Allegheny’s Q1 Earnings in Line, Revenues Top Estimates

Allegheny recorded net income of $15 million or 12 cents per share in first-quarter 2019, down from a profit of $58 million or 42 cents in the prior-year quarter. Earnings per share were in line with the Zacks Consensus Estimate.

The company delivered revenues of $1,004.8 million in the quarter, up 2.6% year over year. Also, the figure surpassed the Zacks Consensus Estimate of $978.4 million.

Segment Highlights

Revenues in the HPMC segment rose roughly 7% year over year to $601.2 million. The upside can be attributed to higher sales of nickel-based and specialty alloy products along with titanium products. Also, sales in the aerospace and defense markets were higher compared with the same in the prior-year quarter. Notably, commercial jet engine sales declined year over year, in spite of an increase in the next-generation jet engine products.

Operating profit fell around 15.1% year over year to $72.6 million in the first quarter. Margins were hurt due to greater-than-expected operational and cost headwinds.  

The FRP segment’s sales declined roughly 4% year over year to $403.6 million. Lower sales of commodity stainless steel sheet affected the segment’s performance.

The division incurred operating loss of $10.9 million, against operating profit of $10.9 million a year ago. Per the company, margins reflect the negative impacts from STAL joint venture, which resulted from demand softness and higher operating costs associated with recent production expansion. Commodity stainless products in the U.S. business also affected margins, which stemmed from cost inefficiencies in finishing operations.

Financial Position

Allegheny ended the first quarter with cash and cash equivalents of $217 million, up 97.5% year over year. Long-term debt rose to $1,536.2 million from $1,535.3 million in the year-ago quarter.

Net cash used in operating activities for the first quarter was $130 million mainly due to higher managed working capital arising from increased business activity.

Outlook

For the second quarter, Allegheny expects sequential improvement in the financial results of the HPMC segment. However, operating margins are likely be lower than initial expectations. The company is working aggressively to offset operational challenges. It is preparing the Bakers Powder facility for additional profitable growth. Overall, the company expects profitably to improve in the second half of 2019.

For the second quarter, Allegheny expects sales in the FRP unit to be sequentially higher along with a solid return to profitability. This is likely to be supported by improved customer demand for high-value products along with favorable raw material surcharge values. The company expects further increases in high-value nickel and titanium product sales during second-half 2019.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -17.82% due to these changes.

VGM Scores

Currently, Allegheny Technologies has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Allegheny Technologies has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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