Allegheny to Buy Crucible

Recently, the world’s largest specialty metals producer Allegheny Technologies Inc. (ATI) bought the assets of Crucible Compaction Metals and Crucible Research for $40.95 million following a bankruptcy court auction. The transaction is expected to close by Oct. 31. The company did not provide further details.

The acquired units belonged to Syracuse, New York-based Crucible Materials Corp. The company, which runs a research center and a plant in Pittsburgh, had filed for Chapter 11 bankruptcy protection in Delaware in May, after being severely hurt by a weak automotive industry.

Earlier this month, Allegheny had also agreed to supply nickel-based superalloy disc-quality products for commercial jet engine applications to Rolls-Royce Plc as part of a 10-year contract. The agreement covers products sold by Allegheny’s subsidiary ATI Allvac to first tier suppliers (forgers) of Rolls-Royce. Allegheny expects revenue of $750 million to $1 billion from the contract.

Allegheny offers specialty metals solutions to aerospace and defense, chemical process industry/oil and gas, electrical energy, medical, automotive, food equipment and appliance, machine and cutting tools, and construction and mining markets.

The company’s earnings have remained depressed over the last year due to the global economic downturn that led to delays in completion and ramping of production levels in new aircraft designs. Falling demand and lower pricing have pressured margins.

In the second quarter, Allegheny's sales more than halved to $710 million, compared with $1,461.2 million in the same period last year. Net earnings were in line with the Zacks Consensus Estimate of 4 cents or $13.4 million. However, profit was significantly lower than $168.9 million, or $1.66 per share, reported in the second quarter of 2008.

We believe Allegheny's solid balance sheet, limited debt maturity and cost reduction efforts put it in a much better position than in previous downturns. Its growth projects will give it increased leverage in the next upturn. We maintain our Neutral recommendation on the stock.

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