Allegheny Takes Actions To Improve Financial Performance

Allegheny Technologies Inc. (NYSE:ATI) has declared numerous actions to improve its future financial performance, which include the indefinite idling of the Rowley, UT-based titanium sponge production facility and consolidation of certain titanium manufacturing operations in Albany, OR.

The company continuously reviews its operations and facilities from both a strategic and cost competitiveness viewpoint. It considers the future market conditions – both the current and the expected – as well as looks into the forecasted growth in demand for its products from all end markets and makes assessments of global supply and demand dynamics. Based on these, the company takes decisions such that it can deliver sustainable profitable growth, and create value for its customers and shareholders over the long-term.

The actions are expected to improve Allegheny’s annual operating income by about $50 million starting in 2017. They are also expected to generate cash flow of about $50 million from reduced managed working capital, as titanium sponge inventory is reduced over the next several quarters.

The company also anticipates to incur total pre-tax, non-cash impairment charges of roughly $470 million for idled facilities, and pre-tax shutdown and idling costs of about $34 million. Due to these charges, Allegheny will also register about $183 million, or $1.71 per share, in non-cash income tax valuation allowances related to U.S. federal tax benefits. The total charges, including the tax valuation allowance, are forecast to be $4.89 per share, of which $4.83 per share is expected to be incurred in third-quarter 2016, and the balance in fourth-quarter 2016.

Allegheny is taking several actions to improve the profitability of its operations, and increase the competitiveness of its High Performance Materials & Components segment. The company has added considerable global capacity to produce its titanium products. It has also entered into long-term, cost competitive supply agreements with a number of leading global producers of premium-grade and standard-grade titanium sponge to provide a reliable supply of high quality and cost effective titanium sponge.

Allegheny expects to see continued profitable growth in High Performance Materials & Components unit over the next several years. The actions are expected to improve its operating earnings by roughly $50 million starting in 2017.

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

Some better-ranked stocks in the basic materials sector include ArcelorMittal (NYSE:MT) , Schnitzer Steel Industries, Inc. (NASDAQ:SCHN) and Angang Steel Company Ltd. ANGGY. While ArcelorMittal and Schnitzer Steel sport a Zacks Rank #1 (Strong Buy), Angang Steel carries a Zacks Rank #2 (Buy).