Titanium Net Down, Outlook Up

Titanium Metals Corporation (TIE - Analyst Report) reported a sharp drop in profits in the fourth quarter of 2009. Net profits declined to 3 cents per share from last year’s 19 cents on production delays in the commercial aerospace industry. However, earnings were ahead of the Zacks Consensus Estimate of 1 cent.

For the full year 2009, earnings were significantly down to 19 cents per share from 89 cents in 2008.

Revenue dropped to $183.5 million from $265.2 million in the fourth quarter of 2008. The company attributed the falling sales and profits to lower demand for titanium stemming from production delays at Boeing Co. (BA - Analyst Report).

Titanium’s Mill product shipments were down 31% to 2,645 million tons while average selling prices declined 18% to $21.50 per kg. Melted product volumes improved 5% to 835 million tons. Average selling prices were $56.25 per kg compared with $57.10 in the same quarter of the previous year.

For the full year 2009, Mill product shipments slipped 24% to 11,425 million tons while that of Melted product was down 29% to 2,750 million tons. Average realized prices were down 8% and 16%, year over year, for Mill product and Melted product, respectively.

Operating income for the reported quarter was $9.3 million, down 74% from the year-ago period. Operating income for 2009 was $54.9 million compared to $219.7 million during 2008, primarily reflecting the effects of lower volumes and average selling prices for Melted and Mill products.

Lower capacity utilization in 2009 negated the positive impact of declining raw material costs, especially titanium scrap. Titanium reported higher per-unit overhead costs as well as unabsorbed fixed overhead costs resulting from abnormally low production throughout its major manufacturing operations.

However, Titanium remains optimistic on the long-term outlook of the aerospace industry, which is focusing on fuel-efficient aircraft requiring a higher proportion of titanium metal. According to the company, its major customer -- Chicago-based Boeing -- is planning to start delivering its new 787 airplane to customers by the fourth quarter of this year. We believe this is likely to drive production across the commercial aerospace supply chain and thereby create demand for Titanium’s products.

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