Back to top

Image: Bigstock

Why Is Allegheny (ATI) Down 9.9% Since the Last Earnings Report?

Read MoreHide Full Article

It has been about a month since the last earnings report for Allegheny Technologies Incorporated (ATI - Free Report) . Shares have lost about 9.9% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it 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 Q4 Loss Lower than Expected, Revenues Miss

Allegheny reported an adjusted loss of $0.04 per share in fourth-quarter 2016, narrower than the Zacks Consensus Estimate of a loss of $0.11.

The results exclude pre-tax restructuring charges of $29 million, including charges of $13 million related to closure related actions at the High Performance Materials & Components (HPMC) segment, and charges of $16 million for closure related actions at the Flat Rolled Products (FRP) segment.

Including one-time items, the company reported a net earnings (attributable to Allegheny) of $10 million or $0.09 per share for the quarter compared with the year-ago loss of $226.9 million or $2.12 per share.

Revenues for the fourth quarter rose 7.7% year over year to $796.1 million, but missed the Zacks Consensus Estimate of $817 million. The top line increased 3.3% from the sequentially prior quarter.

Segment Highlights

Revenues from the HPMC segment improved 4% year over year to $477.2 million in the fourth quarter mainly due to increased sales of nickel-based and specialty stainless alloys as well as forged and cast components. Operating profit increased to $53.8 million from $21 million in the prior-year quarter. The segments profits have improved for six consecutive quarters, reflecting the impact of restructuring activities, including the idling of the titanium sponge plant at Rowley.

The FRP segment’s sales rose 13% year over year to $318.9 million, supported by improving market conditions from the exceptionally weak conditions in the prior-year quarter.

Segment operating loss was $0.8 million compared with an operating loss of $120.1 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 Dec 31, 2016 was $229.6 million, up 53.3% year over year. Long-term debt increased 18.8% to $1,771.9 million.

Cash used by operations for 2016 was $43.7 million. Total debt to total capitalization was 58.3% at the end of the fourth quarter, up from 42% 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 sales are expected to rise roughly 10% and operating profit as a percentage of sales is expected to improve to the low teens in 2017. The company expects the FRP segment to see sequential sales growth in the first two quarters of 2017, but it remains cautious for the second half due to challenging market conditions. The segment is expected to reach a low-single digit operating profit level, as a percentage of sales in 2017.

The company projects capital expenditure of $125 million for full-year 2017. Beyond that capital expenditures are expected not to exceed over $100 million annually for several years.
 

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed an upward trend in fresh estimates. There have been two revisions higher for the current quarter In the past month, the consensus estimate has shifted by 1240% due to these changes.

VGM Scores

At this time, Allegheny's stock has a great score of 'A' on growth and momentum front. However, the stock was allocated a grade of 'D' on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregte VGM Score of 'B'. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks' style scores indicate that the company's stock is suitable for growth and momentum investors.

Outlook

Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising. Interestingly the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.


See More Zacks Research for These Tickers


Normally $25 each - click below to receive one report FREE:


ATI Inc. (ATI) - free report >>

Published in