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Allegheny (ATI) to Post Q1 Earnings: What's in the Cards?

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Allegheny Technologies Incorporated (ATI - Free Report) is scheduled to release first-quarter 2017 results before the market opens on Apr 25.

The company reported adjusted net loss of 4 cents per share in the previous quarter, narrower than the Zacks Consensus Estimate of a loss of 11 cents. The results exclude pre-tax restructuring charges of $29 million, including charges of $13 million pertaining to closure related actions at the High Performance Materials & Components (HPMC) segment, and charges of $16 million for closure related actions at the Flat Rolled Products (FRP) segment. Revenues for the quarter rose 7.7% year over year to $796.1 million, missing the Zacks Consensus Estimate of $817 million.

Let’s see how things have shaped up for the forth coming announcement.

Allegheny Technologies Incorporated Price and EPS Surprise


Factors at Play

Allegheny, in January, said that it remains focused on returning to sustainable profitable growth with an emphasis on strong balance sheet and cash flow generation. The company has been concentrating on restructuring initiatives for the same.

The company expects the HPMC segment’s sales to rise roughly 10% and operating profit as a percentage of sales to improve to the low teens in 2017. Allegheny also expects the FRP segment to see sequential sales growth in the first two quarters of 2017, but it remains cautious for the second half due to challenging market conditions. The segment is expected to reach a low-single digit operating profit level, as a percentage of sales in 2017.

Allegheny, a major supplier to commercial aircraft engine manufacturers, is expanding in the commercial airframes market. The company has a number of innovative products in its arsenal that are expected to account for one fourth of its sales in the aerospace market in 2017. The company is witnessing improved demand from aerospace OEMs, buoyed by production ramp ups by Boeing and Airbus. Demand from the jet engine aftermarket is expected to improve on the back of higher airframe build rates.

Moreover, Allegheny continues to improve its cost structure with its gross cost reduction initiative. The company has implemented a number of restructuring actions that are expected to deliver attractive cost savings. The company has also taken a number of actions to improve its future financial performance. These actions are expected to improve Allegheny’s annual operating income by about $50 million starting in 2017 and generate cash flow of about $50 million from reduced managed working capital.

However, Allegheny remains exposed to challenges in its core FRP segment. The company is cautious on the prospects of the FRP unit for the second half of 2017 due to challenging conditions across certain key end-use markets. Depressed oil prices are also expected to hurt demand for Allegheny's products in the oil and gas market in the short haul.

Allegheny’s shares dipped 0.9% over the past three months, underperforming the Steel-Specialty Alloys  industry’s 13.4% decline.

Earnings Whispers

Our proven model does not conclusively show that Allegheny is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here, as you will see below:

Zacks ESP: The Earnings ESP for Allegheny is -41.67%. This is because the Most Accurate estimate is pegged at 7 cents, while the Zacks Consensus Estimate is 12 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Although Allegheny’s Zacks Rank #3 increases the predictive power of ESP, its negative ESP makes surprise prediction difficult.

Note that Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement, especially when the company is witnessing negative estimate revisions.

Stocks to Consider

Here are some companies in the basic materials space that you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:

The Chemours Company (CC - Free Report) has an earnings ESP of +4.08% and sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

United States Steel Corporation (X - Free Report) has an earnings ESP of +12.9% and flaunts a Zacks Rank #1.

Albermale Corporation (ALB - Free Report) has an earnings ESP of +2.11% and carries a Zacks Rank #2.

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