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Why Is Allegheny Technologies (ATI) Down 23.3% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for Allegheny Technologies (ATI). Shares have lost about 23.3% 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 the most recent earnings report in order to get a better handle on the important drivers.

Allegheny's Earnings and Revenues Beat Estimates in Q2

Allegheny recorded net income of $75.1 million or 54 cents per share in second-quarter 2019, up from a profit of $72.8 million or 52 cents in the prior-year quarter.

Barring one-time items, adjusted earnings per share came in at 40 cents and beat the Zacks Consensus Estimate of 35 cents.

The company delivered revenues of $1,080.4 million in the quarter, up roughly 7% year over year. Also, the figure surpassed the Zacks Consensus Estimate of $1,060.7 million.

Segment Highlights

In the second quarter, revenues in the HPMC segment rose around 8.5% year over year to $642.4 million. The upside can be attributed to higher demand for titanium-based products. Also, sales in the aerospace and defense markets were 17% higher from the year-ago quarter’s level. Notably, commercial airframe market sales surged 40% year over year. Operating profit in the unit rose around 1% year over year to $98.9 million.   

The FRP segment’s sales rose around 5% year over year to $438 million. Per the company, sales of high-value products more than offset lower sales of standard products. Operating profit in the division totaled $15.6 million, which declined 40.2% year over year. The downside reflects higher retirement benefit expenses and loss for Allegheny’s share in the A&T Stainless joint venture stemming from the Section 232 tariffs.  

Financial Position

Allegheny ended the second quarter with cash and cash equivalents of $281.2 million, up more than two-folds year over year. Long-term debt rose to $1,537.1 million from $1,535.5 million in the year-ago quarter.

Net cash used in operating activities was $104.4 million for the first six months of 2019.

Outlook

For the HPMC unit, the company stated that demand for single-aisle platforms remains strong. However, it expects uneven order patterns along with inventory management actions by a major aero-engine customer to negatively impact shipments in the second half of 2019. This will partly lower the benefit from larger share of high value commercial jet engine materials and components.  

For the FRP segment, the company expects consistent profitability in the second half of 2019 on the back of improved customer demand for high-value products, including the U.S. and for the STAL joint venture. Also, higher carbon conversion volumes and favorable raw material surcharge value are expected to drive performance in the segment. The company is focused on sustaining profitability by increasing asset utilization of its Hot-Rolling and Processing Facility as well as improving the product mix.


 

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 -22.04% due to these changes.

VGM Scores

Currently, Allegheny Technologies has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. 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. It's no surprise Allegheny Technologies has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.



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