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Allegheny Technologies Inc. (ATI - Analyst Report) reported first-quarter 2013 earnings of 9 cents per share, down from 50 cents recorded a year ago. The results were in line with the Zacks Consensus Estimate. Profit plummeted 82.2% year over year to $10 million on lower sales.

Revenues slipped 12.8% year over year to $1,179.4 million, missing the Zacks Consensus Estimate of $1,215 million. Revenues were hurt by lower demand across several end markets including oil and gas, jet engine aftermarket, electrical energy, and construction and mining. Allegheny also witnessed lower pricing for many of its products and falling raw materials surcharges.

Operating profit dipped 52% year over year to $78.3 million in the quarter with operating margin contracting to 6.6% from 12.1% a year ago. Lower shipments related with high value products coupled with lower base prices resulted in the decrease in operating profits. The impact of higher raw material costs for products not aligned with lower raw material surcharges also contributed to the decline.

Segment Review

Revenues from the High Performance Metals segment fell 11% year over year to $518.4 million in the quarter due to lower shipments of nickel-based and specialty steel alloys and zirconium. A decline in raw material surcharges, lower pricing as well as lower sales of precision forged and cast components due to lesser demand also impacted the revenues.

Shipments of nickel-based and specialty alloys went up 7%. Titanium and titanium alloys mill products shipments soared 25% while zirconium and related alloys shipments decreased 34% due to weak demand from nuclear energy market and chemical process industry. Sales increased 10% in the segment’s largest end market, aerospace, in the quarter.

Flat-Rolled Products segment revenues were down 12% to $558.1 million on account of reduced raw material surcharges, lower base-selling pricing and a product mix of higher percentage of standard stainless products and lower percentage of high-value products. Shipments of high-value products fell 6% while standard stainless products shipment climbed 10%. Average selling prices for standard stainless products remained at low levels. Average transaction prices for all products decreased 15%.

Sales in the Engineered Products division tumbled 24% to $102.9 million, hurt by weak demand for tungsten-based products and carbon alloy steel forgings. The company witnessed weak demand for oil and gas markets however saw marginal improvements in the construction and mining, cutting tools, transportation, aerospace, and automotive market.

Financial Position

Allegheny’s cash and cash equivalents of $138 million as of Mar 31, 2013, were down 44.8% year over year. Total debt of $1,479.1 million was flat year over year. Total debt-to-capital ratio was 37.3% as of Mar 31, 2013, down marginally from 37.4% recorded a year ago.

Outlook

Allegheny, which is among the prominent players in the U.S. specialty steel industry along with Carpenter Technology (CRS - Snapshot Report), Haynes International (HAYN - Snapshot Report) and Precision Castparts (PCP - Analyst Report), expects business conditions to remain challenging through first-half 2013 given the uncertainties surrounding fiscal policy and weak global economy.

Allegheny expects challenging economic conditions to prevail, thereby impacting the end-markets throughout the second quarter of 2013. The company expects its customers to remain cautious as economic uncertainties persist over the near term, lead times remain short, and raw material prices remains under pressure.  

Nevertheless, Allegheny expects modest recovery in the domestic economic growth coupled with demand improvements in its key global markets.

Allegheny also said that it will focus on implementing cost reduction actions, identifying market opportunities and taking measures to reduce managed working capital for achieving long term profitable growth.

Allegheny currently retains a short-term (1 to 3 months) Zacks Rank #5 (Strong Sell).
 

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