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Allegheny Technologies (ATI) Up 4.2% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Allegheny Technologies (ATI - Free Report) . Shares have added about 4.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Allegheny Technologies due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Allegheny Earnings Miss, Revenues Beat Estimates in Q3

Allegheny 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 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.

Segment Highlights

Revenues at the HPMC segment improved roughly 14% year over year to $585.5 million on 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 FRP segment’s sales rose 22% year over year to $434.7 million. While standard products sales at 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 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 in 2018, which excludes contributions to the ATI Pension Plan.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -15.95% due to these changes.

VGM Scores

Currently, Allegheny Technologies has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Allegheny Technologies has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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