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Allegheny Technologies Inc. (ATI - Analyst Report) isslated to release its first quarter 2011 results on Wednesday, April 27, before the market opens. The current Zacks Consensus Estimate for the first quarter is 49 cents, representing a significant annualized growth of 103.13%.  

With respect to earnings surprise, over the trailing four quarters, Alleghenyout performedthe Zacks Consensus Estimate in the two quarters and lagged behind in the other two quarters. The average earnings surprise was a negative 15.42%, implying that the company was behind the Zacks Consensus Estimate by the same magnitude over the last four quarters.

Fourth-Quarter Performance

On January 26, Allegheny reported its results for the fourth quarter of fiscal 2010. In the fourth quarter, Allegheny reported earnings per share (EPS) of $0.15, missing the Zacks Consensus Estimate of $0.30 and falling significantly short from last year's $0.36 per share. Fourth-quarter results were impacted by a $19.5 million LIFO inventory valuation reserve charge and $20.4 million in start-up and idle facility costs, which reduced earnings by 26 cents per share.

For full-year 2010, earnings were $0.82 per share, higher than $0.49 per share in the year-ago period. This also missed the Zacks Consensus Estimate of $0.94 per share.

Quarterly revenues soared 27.2% year over year to $1.04 billion from $815 million on higher shipments and rising raw material prices. Yet revenues fell short of the Zacks Consensus Estimate at $1.06 billion. Yearly revenues jumped 33% to $4.05 billion from $3.1 billion, beating the Zacks Consensus Estimate of $4.1 billion.

Segment wise, revenue increases were distinct in the Engineered Products segment (56%) and in the Flat-Rolled Products segment (34%), while sales in the Higher Performance Material segment increased modestly (12%).

Allegheny’s operating profit declined 25.7% to $88.0 million due to a LIFO inventory valuation reserve charge of $19.5 million in the fourth quarter of 2010 compared with a benefit of $43.8 million in the fourth quarter of 2009. Results were adversely affected by idled facilities and start-up costs.

For fiscal year 2011, Allegheny expects revenue growth to be in the range of 15% to 20% compared with 2010, and expects segment operating profit to be approximately 15% of sales. The company targets a minimum of $100 million in new gross cost reductions.  Capital expenditures are forecasted in the range of $300 to $350 million.

Allegheny expects rising demand in the aerospace market to drive sales going forward. The company expects the global oil and gas/chemical process industry to remain strong due to increased demand from offshore oil and gas projects, large sour gas pipelines, desalination projects and increasing orders for chemical processing projects from several parts of the world.

In the electrical energy market, Allegheny expects demand for grain-oriented electrical steel for power distribution to remain essentially flat.  The company also expects demand from the nuclear electrical energy market to remain flat in 2011, although growth opportunities exist for new nuclear plants under construction over the next several years.

The medical market reached a record of nearly 6% of 2010 sales and Allegheny remains optimistic and expects demand to continue in 2011.

Agreement of Estimate Revisions

In the last 30 days, out of the 8 analysts covering the stock, none increased nor decreased their EPS estimate for first-quarter 2011. For fiscal year 2011, in the last 30 days, out of the 7 analysts covering the stock, 1 analyst raised its EPS estimates, while none decreased the estimate.

 

Agreement - Estimate Revisions

 

Current Qtr
(03/2011)

Next Qtr
(06/2011)

Current Year
(12/2011)

Next Year
(12/2012)

 

Up Last 7 Days

0

0

0

0

 

Up Last 30 Days

0

1

1

1

 

Down Last 7 Days

0

0

0

0

 

Down Last 30 Days

0

0

0

0

 

 

Magnitude of Estimate Revisions

Earnings estimates for first quarter 2011, in the last 30 days, decreased by 1 cent to $0.49 from $0.50. For fiscal year 2011, earnings estimates, in the last 30 days, increased by 5 cents to $4.26 from $4.21.

 

Magnitude - Consensus Estimate Trend

 

Current Quarter
(03/2011)

Next Quarter
(06/2011)

Current Year
(12/2011)

Next Year
(12/2012)

 

Current

0.49

0.73

3.00

4.26

 

7 Days Ago

0.50

0.74

3.00

4.24

 

30 Days Ago

0.50

0.73

2.99

4.21

 

60 Days Ago

0.49

0.73

2.99

4.25

 

90 Days Ago

0.52

0.67

2.83

3.88

 

 

Our Take

Based in Pittsburgh, PA, Allegheny Technologies Inc. is one of the largest and most diversified specialty materials producers in the world. The aerospace market has started recovering, which boosted the demand for Allegheny’s products.

Allegheny is a significant supplier to commercial aircraft engine manufacturers and is also expanding in the commercial airframes market. However, Allegheny has been battling cost-pressures associated with high raw material costs by implementing price hikes through surcharges.

Allegheny is facing an overcapacity of competitive stainless steel. A significant portion of the sales under the High Performance Metals segment is attributed to customers in the commercial aerospace industry. The commercial aerospace industry has historically been cyclical. Although the aerospace market has shown some improvement recently, we expect Allegheny to see a slower growth in its High Performance Segment, which generates a major chunk of revenues. Moreover, increasing input costs are putting margin pressure on all domestic steel manufacturers.

The company’s competitors include Carpenter Technology Corp. (CRS - Snapshot Report) and Sutor Technology Group Limited .

Currently, Allegheny has a short-term (1 to 3 months) Zacks #3 Rank ('Hold') and a long-term Neutral recommendation.

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