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Allegheny's (ATI) Q1 Earnings in Line, Revenues Top Estimates

Zacks Equity Research

Allegheny Technologies Inc. ATI 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.

Allegheny Technologies Incorporated Price, Consensus and EPS Surprise

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

Segment Highlights

Revenues in the High Performance Materials & Components (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 Flat-Rolled Products (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. 

Price Performance

Shares of Allegheny have lost 10.4% in the past year compared with the industry’s 4.9% decline.



Zacks Rank & Key Picks

Allegheny currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the basic materials space are Sandstorm Gold Ltd SAND, Innospec Inc IOSP and Fortescue Metals Group Ltd FSUGY, each currently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Sandstorm Gold has an expected earnings growth rate of 200% for 2019. The company’s shares have gained 15.6% in the past year.

Innospec has an expected earnings growth rate of 3.5% for the current year. The company’s shares have returned 14.7% in a year’s time.

Fortescue Metals has an expected earnings growth rate of 101.5% for 2019. Its shares have surged 53.2% in a year’s time.

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