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Allegheny (ATI) Q3 Earnings: Disappointment in the Cards?
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Allegheny Technologies Incorporated (ATI - Free Report) is scheduled to release its third-quarter 2016 results before the market opens on Oct 25.
The company reported an adjusted net loss of 21 cents per share in second-quarter 2016. The adjusted loss was narrower than the Zacks Consensus Estimate of a loss of 39 cents by 46.15%. The results exclude post-tax charges of $8.4 million related to work stoppage in the Flat-Rolled Products (FRP) segment, and $11.4 million of tax benefits. Revenues for the quarter fell 21% year over year to $810.5 million but breezed past the Zacks Consensus Estimate of $761 million.
Let’s see how things have shaped up for the forthcoming announcement.
Factors at Play
Allegheny is a significant supplier to commercial aircraft engine manufacturers and is also expanding in the commercial airframes market. The company has a number of innovative new products in its arsenal that are expected to account for a fourth of its sales to the aerospace market by 2017.
Allegheny, in August, announced numerous steps 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 actions are anticipated to improve Allegheny’s annual operating income by about $50 million starting in 2017. Additionally, they are 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 seeing improving demand from aerospace OEMs, buoyed by production ramp ups by Boeing and Airbus. Demand from the jet engine aftermarket is projected to improve on the back of higher airframe build rates. Based on healthy market demand, the company expects High Performance segment sales to the commercial aerospace market to reach around 70% of total segment revenues in 2016.
Allegheny is in the process of finishing several self-funded capital projects, some of which have already been completed, to help augment organic growth and its cost structure. The company’s $1.2 billion Hot-Rolling and Processing Facility (HRPF) is now fully integrated into daily operations. It is producing high-value and standard flat rolled products in wider, longer and thinner coils. The HRPF facility is anticipated to significantly boost capabilities of the Flat-Rolled Products division. Further, the company has started production ramp at its Rowley titanium sponge facility.
The FRP segment of the company, although still faces a host of headwinds, saw operational improvement in second-quarter 2016. The segment returned to normal operating levels and continues to see improvement. The company is restructuring the segment to make it more cost efficient and more focused on differentiated products. The segment is expected to provide a moderate level of profitability in fourth-quarter 2016.
However, selling prices and demand for the company’s standard stainless products are anticipated to remain under pressure. Additionally, depressed oil prices have created an uncertain demand environment for the company’s products in drilling applications in the oil and gas industry.
Our proven model does not conclusively show that Allegheny is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here, as you will see below:
Zacks ESP: The Earnings ESP for Allegheny is -18.18%. This is because the Most Accurate Estimate is pegged at a loss of 13 cents, while the Zacks Consensus Estimate is at a loss of 11 cents.
Zacks Rank: Allegheny’s Zacks Rank #3 (Hold) increases the predictive power of its ESP, but a negative ESP makes a beat unlikely.
Note that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) and 3 have a significantly higher chance of beating earnings. The Sell rated stocks (#4 or 5) should never be considered going into an earnings announcement.
Stocks to Consider
Here are some other companies in the basic materials space you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:
B2Gold Corp. (BTG - Free Report) has an Earnings ESP of +25% and a Zacks Rank #2.
The Dow Chemical Company (DOW - Free Report) has an Earnings ESP of +1.25% and a Zacks Rank #2.
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Allegheny (ATI) Q3 Earnings: Disappointment in the Cards?
Allegheny Technologies Incorporated (ATI - Free Report) is scheduled to release its third-quarter 2016 results before the market opens on Oct 25.
The company reported an adjusted net loss of 21 cents per share in second-quarter 2016. The adjusted loss was narrower than the Zacks Consensus Estimate of a loss of 39 cents by 46.15%. The results exclude post-tax charges of $8.4 million related to work stoppage in the Flat-Rolled Products (FRP) segment, and $11.4 million of tax benefits. Revenues for the quarter fell 21% year over year to $810.5 million but breezed past the Zacks Consensus Estimate of $761 million.
Let’s see how things have shaped up for the forthcoming announcement.
Factors at Play
Allegheny is a significant supplier to commercial aircraft engine manufacturers and is also expanding in the commercial airframes market. The company has a number of innovative new products in its arsenal that are expected to account for a fourth of its sales to the aerospace market by 2017.
Allegheny, in August, announced numerous steps 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 actions are anticipated to improve Allegheny’s annual operating income by about $50 million starting in 2017. Additionally, they are 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 seeing improving demand from aerospace OEMs, buoyed by production ramp ups by Boeing and Airbus. Demand from the jet engine aftermarket is projected to improve on the back of higher airframe build rates. Based on healthy market demand, the company expects High Performance segment sales to the commercial aerospace market to reach around 70% of total segment revenues in 2016.
Allegheny is in the process of finishing several self-funded capital projects, some of which have already been completed, to help augment organic growth and its cost structure. The company’s $1.2 billion Hot-Rolling and Processing Facility (HRPF) is now fully integrated into daily operations. It is producing high-value and standard flat rolled products in wider, longer and thinner coils. The HRPF facility is anticipated to significantly boost capabilities of the Flat-Rolled Products division. Further, the company has started production ramp at its Rowley titanium sponge facility.
The FRP segment of the company, although still faces a host of headwinds, saw operational improvement in second-quarter 2016. The segment returned to normal operating levels and continues to see improvement. The company is restructuring the segment to make it more cost efficient and more focused on differentiated products. The segment is expected to provide a moderate level of profitability in fourth-quarter 2016.
However, selling prices and demand for the company’s standard stainless products are anticipated to remain under pressure. Additionally, depressed oil prices have created an uncertain demand environment for the company’s products in drilling applications in the oil and gas industry.
ALLEGHENY TECH Price and EPS Surprise
ALLEGHENY TECH Price and EPS Surprise | ALLEGHENY TECH Quote
Earnings Whispers
Our proven model does not conclusively show that Allegheny is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here, as you will see below:
Zacks ESP: The Earnings ESP for Allegheny is -18.18%. This is because the Most Accurate Estimate is pegged at a loss of 13 cents, while the Zacks Consensus Estimate is at a loss of 11 cents.
Zacks Rank: Allegheny’s Zacks Rank #3 (Hold) increases the predictive power of its ESP, but a negative ESP makes a beat unlikely.
Note that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) and 3 have a significantly higher chance of beating earnings. The Sell rated stocks (#4 or 5) should never be considered going into an earnings announcement.
Stocks to Consider
Here are some other companies in the basic materials space you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:
The Chemours Company (CC - Free Report) has an Earnings ESP of +25.71% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
B2Gold Corp. (BTG - Free Report) has an Earnings ESP of +25% and a Zacks Rank #2.
The Dow Chemical Company (DOW - Free Report) has an Earnings ESP of +1.25% and a Zacks Rank #2.
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>