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Is a Beat in the Cards for Allegheny's (ATI) Q4 Earnings?

Zacks Equity Research

Allegheny Technologies Incorporated ATI is scheduled to release fourth-quarter 2018 results on Jan 22, before the opening bell.

In the third quarter, the company reported net earnings of $50.5 million or 37 cents per share, improving from net loss of $121.2 million or $1.12 in the prior-year quarter. Earnings, however, missed the Zacks Consensus Estimate of 39 cents.

The company reported revenues of $1,020.2 million in the quarter, up 17.4% year over year. Sales beat the Zacks Consensus Estimate of $1,001 million.

Notably, Allegheny outpaced the Zacks Consensus Estimate in three of the trailing four quarters, the average positive surprise being 41.4%.

Allegheny has outperformed the industry in a year’s time. Shares of the company have lost around 11.3% compared with the industry’s decline of around 15.7% over the same period.

Will the company surprise investors again or is it headed for a possible pullback? Let’s see how things are shaping up for the forthcoming announcement.

Allegheny Technologies Incorporated Price and EPS Surprise


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

Earnings Whispers

Our proven model shows that Allegheny is likely to beat estimates in the fourth quarter. That is because a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is the case here as you will see below:

Earnings ESP: Earnings ESP for Allegheny is +3.18%. This is because the Most Accurate Estimate and the Zacks Consensus Estimate are currently pegged at 35 cents and 34 cents, respectively. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Allegheny currently carries a Zacks Rank #3, which when combined with a positive ESP, makes us reasonably confident of an earnings beat. You can see the complete list of today’s Zacks #1 Rank stocks here.

Note that we caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Factors at Play

Allegheny, in its third-quarter earnings call, stated that it expects year-over-year growth in operating margin and revenues at the High Performance Materials & Components (HPMC) division in the fourth quarter owing to improved asset utilization and higher aerospace market demand. The company also expects a year-over-year improvement in operating margin of 150-300 basis points on strong end-market demand, benefits from Hot-Rolling and Processing Facility (HRPF) utilization and solid rise in differentiated product sales.

The Zacks Consensus Estimate for fourth-quarter consolidated revenues for Allegheny is $981.4 million, reflecting an expected increase of around 7.8% year over year.

Allegheny’s Flat-Rolled Products (FRP) division benefited from improved cost absorption through higher operating rates along with enhanced matching of raw material surcharges with changes in prices for ferrochrome, nickel and other metallics in the third quarter. However, the company expects a significant price fall in major raw materials and sequentially lower ferrochrome and nickel prices to lead to weaker fourth-quarter results due to mismatch between input costs and the surcharge index pricing mechanism.

Allegheny continues to improve its cost structure with its gross cost reduction initiative. The company expects to generate free cash flow of more than $150 million for full-year 2018 from operational improvement, financial performance and disciplined spending.

Allegheny’s JV with Tsingshan Group Company will also offer cost competitive stainless sheet products, made for the North American market, through a unique combination of Allegheny’s innovative, low-cost HRPF, and Tsingshan’s unparalleled Indonesian refining, mining and castings assets, along with the JV’s unique Direct Roll Anneal and Pickle facility in Midland, PA.

Moreover, the JV supports Allegheny’s considerable investment in the U.S. manufacturing operations, especially in its HRPF facility, which will provide value addition to the processing services for the JV’s finished products. Allegheny’s agreement with NLMK USA will also open up an additional growth opportunity in HRPF utilization.

Other Stocks Poised to Beat Estimates

Here are some other companies in the basic materials space that you may also want to consider, as our model shows these also have the right combination of elements to post an earnings beat this quarter:

New Gold Inc. NGD has an Earnings ESP of +166.67% and carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ryerson Holding Corporation RYI has an Earnings ESP of +48.34% and carries a Zacks Rank #3.

LyondellBasell Industries N.V. LYB has an Earnings ESP of +2.37% and carries a Zacks Rank #3.
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