Allegheny (ATI) Q3 Loss Wider Than Estimates, Sales Trail

Allegheny Technologies Inc. (NYSE:ATI) reported an adjusted loss of 21 cents per share in third-quarter 2016, much wider than the Zacks Consensus Estimate of a loss of 11 cents.

The results exclude non-cash impairment charges of $471 million, charges of $9 million related to excess operating costs at Rowley, and $173 million of tax benefits.

Including one-time items, the company reported a net loss (attributable to Allegheny) of $530.8 million or $4.95 cents per share for the quarter compared with the year-ago loss of $144.6 million or $1.35 cents per share.

Revenues for the third quarter fell 7.5% year over year to $770.5 million, also missing the Zacks Consensus Estimate of $839 million. The top line declined 4.9% from the sequentially prior quarter.

Segment Highlights

Revenues from the High Performance Metals and Components (“HPMC”) segment dropped 3% year over year to $461.8 million in the third quarter mainly due to lower titanium and titanium alloys sales. Operating profit increased to $47 million from $18.8 million in the prior-year quarter.

The segment’s results exclude all operating expenses of the Rowley, UT titanium sponge facility. The facility's operations were curtailed following the indefinite idling action that was announced on Aug 24, 2016.

The Flat Rolled Products (FRP) segment’s sales declined 14% year over year to $308.7 million, hurt by lower shipments of certain products resulting from the idling of the GOES operations.

Segment operating loss was $20.8 million compared with an operating loss of $91.8 million in the year-ago quarter. The segment’s losses narrowed due to better average selling prices as well as benefits from improving operating performance.

Financial Position

Allegheny’s cash in hand as of Sep 30, 2016 was $188.4 million, down 4.63% year over year. Long-term debt increased 24.6% to $1,870.4 million.

Cash flow used by operations for the first nine months of 2016 was $111.7 million. Total debt to total capitalization was 56.3% at the end of the quarter, up from 38.5% a year ago.

Outlook

Management remains focused on returning the company to sustainable profitable growth with an emphasis on strong balance sheet and cash flow generation. The company has been concentrating on restructuring initiatives for the same.

The HPMC segment’s operating profit as a percentage of sales is expected to improve in the fourth quarter of 2016. However, not much improvement is expected in the FRP segment due to challenging market conditions.

A closure charge of $10 million is expected in the fourth quarter related to the Rowley facility. The fourth-quarter’s results are also expected to include a charge of $11−$21 million related to employee benefit costs and other obligations associated with the FRP segment. The company projects capital expenditure of $215 million for full-year 2016 and $120 million for full-year 2017. Beyond that capital expenditures are not expected to be over $100 million annually for several years.

ALLEGHENY TECH Price, Consensus and EPS Surprise

ALLEGHENY TECH Price, Consensus and EPS Surprise | ALLEGHENY TECH Quote

Zacks Rank

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

Some better-ranked companies in the basic materials space include ArcelorMittal (NYSE:MT) , Carpenter Technology Corp. (NYSE:CRS) and Ryerson Holding Corp. (NYSE:RYI)

ArcelorMittal registered a 375% positive earnings surprise in the last reported quarter. The stock holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Carpenter Technology, with a Zacks Rank #2, posted a positive earnings surprise of 6.06% in the last reported quarter.

Ryerson Holding, with a Zacks Rank #2, delivered a positive surprise of 13.04% in the last reported quarter.

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