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Allegheny (ATI) Earnings Miss, Revenues Beat Estimates in Q3

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Allegheny Technologies Inc. (ATI - Free Report) reported net earnings of $50.5 million or 37 cents per share in third-quarter 2018, an improvement from net loss of $121.2 million or $1.12 per share in the prior-year quarter. Earnings, however, missed the Zacks Consensus Estimate of 39 cents.

The company reported revenues of $1,020.2 million in the quarter, up 17.4% year over year. Sales beat the Zacks Consensus Estimate of $1,001 million.

Shares of Allegheny have lost 14.6% in the past three months compared with the industry’s fall of 8.1%.



Segment Highlights

Revenues at the High Performance Materials & Components (HPMC) segment improved roughly 14% year over year to $585.5 million driven by increased sales of next-generation jet engine products.

Operating profit rose to $76 million from $61.7 million in the prior-year quarter. The improvement was mainly driven by better product mix of next-generation nickel alloys, forgings for the aero engine market and higher productivity from increasing aerospace and defense sales.

The Flat-Rolled Products (FRP) segment’s sales rose 22% year over year to $434.7 million. While standard products sales in this segment rose 13%, the same for high-value products went up 26%.

The segment’s operating profit came in at $29.5 million, improving from the year-ago quarter’s operating loss of $7.3 million. The improvement can be attributed to the better cost absorption through higher operating rates along with improved matching of raw material surcharges with changes in prices for ferrochrome, nickel and other metallics.

Financial Position

Allegheny’s cash in hand as of Sep 30, 2018 was $153.5 million, up 23% year over year. Long-term debt fell 18.2% to $1,535.3 million.

The company generated operating cash flows of $81.6 million in the quarter.

Outlook

Allegheny expects year-over-year growth in operating margin and revenues at the HPMC division in the fourth quarter of 2018 owing to improved asset utilization and higher aerospace market demand.
 
At the FRP segment, the company expects a significant price fall in major raw materials to lead to weaker fourth-quarter results due to mismatch between input costs and the surcharge index pricing mechanism. Meanwhile, U.S. operations are forecast to be profitable in the fourth quarter. The company also continues to expect year-over-year improvement in operating margin of 150-300 basis points in 2018 driven by strong end-market demand, benefits from HRPF utilization and strong growth of differentiated product sales.
 
The company expects strong cash generation in the fourth quarter and reaffirmed its target to generate at least $150 million of free cash flow for 2018, which excludes contributions to the ATI Pension Plan.

Allegheny Technologies Incorporated Price, Consensus and EPS Surprise

Zacks Rank & Other Stocks to Consider

Allegheny currently has a Zacks Rank #2 (Buy).

A few other top-ranked stocks in the basic materials space are KMG Chemicals, Inc. , Methanex Corporation (MEOH - Free Report) and CF Industries Holdings, Inc. (CF - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

KMG Chemicals has an expected long-term earnings growth rate of 28.5%. Its shares have returned 35.2% in a year.

Methanex has an expected long-term earnings growth rate of 15%. Its shares have rallied 42.7% in a year.

CF Industries has an expected long-term earnings growth rate of 6%. Its shares have risen 30.4% in a year.

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