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Why Is Allegheny (ATI) Down 10% Since its Last Earnings Report?

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A month has gone by since the last earnings report for Allegheny Technologies Incorporated (ATI - Free Report) . Shares have lost about 10% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to its next earnings release, or is ATI due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Allegheny's Earnings & Revenues Top Estimates in Q4

Allegheny reported net earnings of $1.7 million or a penny per share for fourth-quarter 2017, compared with $9.9 million or 9 cents per share recorded a year-ago.

Barring one-time items, adjusted earnings came in at 27 cents per share for the quarter, which surpassed the Zacks Consensus Estimate of 14 cents.

Revenues for the quarter rose 14% year over year to $910 million, beating the Zacks Consensus Estimate of $904.5 million.

FY17 Results

For full-year 2017, the company reported net loss of $91.9 million, or 83 cents per share, compared with a prior-year loss of $640.9 million, or $5.97. Adjusted earnings for the year came in at $54.6 million or 48 cents per share, as against adjusted loss of $97.4 million or 91 cents recorded a year ago.

Allegheny reported revenues of $3.5 billion in 2017, up around 13% from $3.13 billion reported in 2016.

Segment Highlights

Revenues from the HPMC segment improved 9% year over year to $517.7 million in the fourth quarter due to higher sales of forged and cast components and nickel-based and specialty alloys.

Operating profit increased to $65.8 million from $53.8 million in the prior-year quarter. The segment’s profit reflects higher productivity from increasing aerospace and defense sales, an improved product mix of next-generation nickel alloys and forgings for the aero engine market and benefits of the 2016 titanium operation-restructuring activities.

FRP segment’s sales rose 23% year over year to $392.2 million on the back of higher shipment volume for both high-value products and modestly higher selling prices of standard stainless and high-value products.

The segment’s operating profit came in at $22.4 million as against the year-ago quarter loss of $0.8 million. Results reflect favorable impact of an improved product mix, especially titanium and nickel-alloy products, and more stable prices of raw materials.

Financial Position

Allegheny’s cash in hand as of Dec 31, 2017 was $142 million, down 38.3% year over year. Long-term debt fell 13.6% to $1,530.6 million.

The company generated operating cash flows of $76 million in the quarter.

Outlook

Allegheny expects continued operating margin improvement and revenue growth in its HPMC unit in 2018 resulting from improved asset utilization and ongoing aerospace market demand growth. Allegheny also expects its FRP unit to build on the operational improvements and product mix benefits attained last year and improve operating margins.

However, the company expects first-quarter 2018 results to be unfavorably impacted by roughly $10 million, on a sequential basis, owing to reduced ferrochrome surcharges and required accounting changes on retirement benefit cost capitalization in inventory. The company sees the production ramp-up of the proposed joint venture with Tsingshan Stainless to meaningfully benefit FRP results in second-half 2018.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. There has been one revision higher for the current quarter. While looking back an additional 30 days, we can see even more upward momentum. There have been two moves up in the last two months. In the past month, the consensus estimate has shifted by 16.3% due to these changes.

VGM Scores

Currently, ATI has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was  allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

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

Based on our scores, the stock is more suitable for growth and momentum investors than value investors.

Outlook

Estimates have been trending upward for the stock and the magnitude of this revision looks promising. It comes with little surprise ATI has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.


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