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Share Name | Share Symbol | Market | Type |
---|---|---|---|
ATI Inc | NYSE:ATI | NYSE | Common Stock |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|
0.24 | 0.41% | 58.29 | 59.13 | 57.50 | 58.88 | 1,023,101 | 19:59:45 |
Increased Earnings Driven by Strong Execution; Non-Core Asset Sales Increase Free Cash Flow
Second Quarter 2019 Highlights
Allegheny Technologies Incorporated (NYSE: ATI) reported second quarter 2019 results, with sales of $1.08 billion and net income attributable to ATI of $75.1 million, or $0.54 per share. Second quarter 2019 results include $21.6 million in net pretax gains on previously-announced sales of non-core assets comprised of a $29.3 million gain on the first of two transactions to monetize oil & gas rights and a $7.7 million loss on sale of the industrial forgings business. Excluding these non-core items net-of-tax, second quarter 2019 net income attributable to ATI was $55.0 million, or $0.40 per share. This compares to ATI’s second quarter 2018 sales of $1.01 billion and net income attributable to ATI of $72.8 million, or $0.52 per share.
“In the second quarter, we demonstrated our ability to successfully manage near-term headwinds, as well as make progress on strengthening our balance sheet,” said Robert S. Wetherbee, ATI President and Chief Executive Officer. “Both of our business segments made important strides in the quarter to resume our trajectory of profitable growth. Non-core asset sales, including divesting a smaller business that did not align with our strategic priorities, sharpens our focus on differentiated products requiring our materials science capabilities and advanced process technologies.”
HPMC sales increased 9% in the second quarter 2019 compared to the prior year primarily due to a 17% increase in sales to the aerospace & defense markets. Next-generation jet engine products sales increased by 26% and represented 59% of total second quarter 2019 HPMC jet engine product sales. Sales to the commercial airframe market were 40% higher driven by increasing emergent demand from a large OEM customer, and government aerospace & defense sales were 32% higher across a broad range of programs. HPMC operating profit slightly increased compared to the prior year to $98.9 million and represented 15.4% of sales. “HPMC segment results showed strong topline growth as we continued to meet our aerospace ramp commitments. Segment operating profit improved as our sales on major commercial aerospace programs continue to grow,” said Mr. Wetherbee.
FRP sales were 5% higher in the second quarter 2019 compared to the prior year, primarily due to project-based demand for high-value products in the oil & gas market, as well as marine scrubber products within the energy market and demand growth from the aerospace & defense market. “Our U.S. Flat Rolled business returned to profitability in the second quarter as we achieved a better balance of raw material costs and indexed-based selling prices. Sales of high-value nickel-based and specialty alloys were more than 30% higher than both the first quarter 2019 and the second quarter 2018 as we continue to focus on differentiated products,” said Wetherbee. FRP segment results in the second quarter 2019 also include a $4 million loss for ATI’s share of the A&T Stainless joint venture as a direct result of the Section 232 import tariffs.
As of June 30, 2019, cash on hand was $281 million and available additional liquidity under the Company’s asset-based lending (ABL) credit facility was approximately $360 million, with no borrowings under the revolving credit portion of the ABL. Cash provided by operations for the second quarter of 2019 was $26 million, as increased profitability more than offset $38 million in higher managed working capital from increased business activity and a $28 million contribution to a U.S. defined benefit pension plan. Capital expenditures for the second quarter 2019 were $28 million, bringing the year-to-date total to $51 million and in line with expectations. Cash also increased $63 million in the second quarter 2019 from net proceeds from non-core asset sales.
Strategy and Outlook
“We continue to work proactively with our customers to meet our supply requirements for the ongoing aerospace production ramp, and as previously announced, we expect to maintain our current production and delivery schedules related to the 737 MAX aircraft,” said Wetherbee. “We have confidence in Boeing’s ability to address current narrow-body model issues.”
HPMC segment operating margins in the second half of 2019 are expected to improve significantly year-over-year. While demand remains strong for single-aisle platforms, uneven order patterns and inventory management actions by a major aero-engine customer are expected to negatively impact second half shipments, partially lowering the benefit from increased share of high value commercial jet engine materials and components. The Company believes these issues are temporary and the benefits from our increased share will meaningfully benefit 2020 and future periods. “We are dedicated to strong operational execution and to meeting our aerospace production ramp requirements,” said Mr. Wetherbee.
In the FRP segment, the Company expects continued profitability in the second half of 2019 due to improved customer demand for high-value products – both in the U.S. and for the STAL joint venture, favorable raw material surcharge values, and increased carbon conversion volumes. “Our focus for the FRP segment remains on achieving sustainable profitability by improving the product mix and increasing asset utilization of our Hot-Rolling and Processing Facility.
“During the second quarter, we generated cash both from operating activities and from non-core asset sales, and we intend to accelerate our efforts to improve our balance sheet,” said Wetherbee. Additional non-core asset sales will generate approximately $189 million in cash proceeds in the third quarter, including $127 million for the sale of our titanium casting operations and $62 million for the sale of oil and gas rights in New Mexico. We intend to make significant progress on both pension funding and debt reduction in the next 12 months,” Wetherbee concluded.
Second Quarter 2019 Financial Results
High Performance Materials & Components Segment
Market Conditions
Second quarter 2019 compared to second quarter 2018
Flat Rolled Products Segment
Market Conditions
Second quarter 2019 compared to second quarter 2018
Corporate Expenses/ Closed Operations and Other Expenses
Income Taxes
Allegheny Technologies will conduct a conference call with investors and analysts on Tuesday, July 23, 2019, at 8:30 a.m. ET to discuss the financial results. The conference call will be broadcast, and accompanying presentation slides will be available, at ATImetals.com. To access the broadcast, click on “Conference Call”. Replay of the conference call will be available on the Allegheny Technologies website.
This news release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Certain statements in this news release relate to future events and expectations and, as such, constitute forward-looking statements. Forward-looking statements, which may contain such words as “anticipates,” “believes,” “estimates,” “expects,” “would,” “should,” “will,” “will likely result,” “forecast,” “outlook,” “projects,” and similar expressions, are based on management’s current expectations and include known and unknown risks, uncertainties and other factors, many of which we are unable to predict or control. Our performance or achievements may differ materially from those expressed or implied in any forward-looking statements due to the following factors, among others: (a) material adverse changes in economic or industry conditions generally, including global supply and demand conditions and prices for our specialty metals; (b) material adverse changes in the markets we serve; (c) our inability to achieve the level of cost savings, productivity improvements, synergies, growth or other benefits anticipated by management from strategic investments and the integration of acquired businesses; (d) volatility in the price and availability of the raw materials that are critical to the manufacture of our products; (e) declines in the value of our defined benefit pension plan assets or unfavorable changes in laws or regulations that govern pension plan funding; (f) labor disputes or work stoppages; (g) equipment outages and (h) other risk factors summarized in our Annual Report on Form 10-K for the year ended December 31, 2018, and in other reports filed with the Securities and Exchange Commission. We assume no duty to update our forward-looking statements.
Creating Value Thru Relentless Innovation™
ATI is a global manufacturer of technically advanced specialty materials and complex components. ATI revenue was $4.1 billion for the twelve month period ended June 30, 2019. Our largest markets are aerospace & defense, particularly jet engines. We also have a strong presence in the oil & gas, energy, medical, automotive, and other industrial markets. ATI is a market leader in manufacturing differentiated specialty alloys and forgings that require our unique manufacturing and precision machining capabilities and our innovative new product development competence. We are a leader in producing powders for use in next-generation jet engine forgings and 3D-printed aerospace products. See more at our website ATIMetals.com.
Allegheny Technologies Incorporated and Subsidiaries Consolidated Statements of Income (Unaudited, dollars in millions, except per share amounts)Three Months Ended
Six Months Ended
June 30
March 31
June 30
June 30
June 30
2019
2019
2018
2019
2018
Sales$
1,080.4
$
1,004.8
$
1,009.5
$
2,085.2
$
1,988.5
Cost of sales
902.7
873.7
835.8
1,776.4
1,666.2
Gross profit
177.7
131.1
173.7
308.8
322.3
Selling and administrative expenses
67.7
68.0
62.7
135.7
129.8
Operating income
110.0
63.1
111.0
173.1
192.5
Nonoperating retirement benefit expense
(18.4
)
(18.3
)
(8.8
)
(36.7
)
(17.1
)
Interest expense, net
(25.9
)
(24.8
)
(25.5
)
(50.7
)
(51.0
)
Other (expense) income, net
18.6
(2.9
)
3.8
15.7
21.6
Income before income taxes
84.3
17.1
80.5
101.4
146.0
Income tax provision
5.8
0.8
4.9
6.6
9.9
Net income
$
78.5
$
16.3
$
75.6
$
94.8
$
136.1
Less: Net income attributable to noncontrolling interests
3.4
1.3
2.8
4.7
5.3
Net income attributable to ATI
$
75.1
$
15.0
$
72.8
$
90.1
$
130.8
Basic net income attributable to ATI per common share
$
0.60
$
0.12
$
0.58
$
0.72
$
1.05
Diluted net income attributable to ATI per common share
$
0.54
$
0.12
$
0.52
$
0.66
$
0.94
Allegheny Technologies Incorporated and Subsidiaries Sales and Operating Profit (Loss) by Business Segment (Unaudited, dollars in millions)
Three Months Ended
Six Months Ended
June 30
March 31
June 30
June 30
June 30
2019
2019
2018
2019
2018
Sales: High Performance Materials & Components$
642.4
$
601.2
$
591.9
$
1,243.6
$
1,152.6
Flat Rolled Products
438.0
403.6
417.6
841.6
835.9
Total external sales
$
1,080.4
$
1,004.8
$
1,009.5
$
2,085.2
$
1,988.5
Operating profit (loss): High Performance Materials & Components
$
98.9
$
72.6
$
97.9
$
171.5
$
183.4
% of Sales
15.4
%
12.1
%
16.5
%
13.8
%
15.9
%
Flat Rolled Products
15.6
(10.9
)
26.1
4.7
37.0
% of Sales
3.6
%
-2.7
%
6.3
%
0.6
%
4.4
%
Total operating profit
114.5
61.7
124.0
176.2
220.4
% of Sales
10.6
%
6.1
%
12.3
%
8.5
%
11.1
%
LIFO and net realizable value reserves
-
(0.1
)
-
(0.1
)
-
Corporate expenses
(18.0
)
(16.6
)
(12.9
)
(34.6
)
(26.1
)
Closed operations and other expense
(7.9
)
(3.1
)
(5.1
)
(11.0
)
(13.2
)
Gain on joint venture deconsolidation
-
-
-
-
15.9
Gains on asset sales, net
21.6
-
-
21.6
-
Interest expense, net
(25.9
)
(24.8
)
(25.5
)
(50.7
)
(51.0
)
Income before income taxes$
84.3
$
17.1
$
80.5
$
101.4
$
146.0
Allegheny Technologies Incorporated and Subsidiaries Condensed Consolidated Balance Sheets (Current period unaudited, dollars in millions)
June 30,
December 31,
2019
2018
ASSETS Current Assets: Cash and cash equivalents$
281.2
$
382.0
Accounts receivable, net of allowances for doubtful accounts
581.4
527.8
Short-term contract assets
40.9
51.2
Inventories, net
1,217.5
1,211.1
Prepaid expenses and other current assets
140.4
74.6
Total Current Assets
2,261.4
2,246.7
Property, plant and equipment, net
2,404.9
2,475.0
Goodwill
524.8
534.7
Other assets
358.2
245.4
Total Assets$
5,549.3
$
5,501.8
LIABILITIES AND EQUITY Current Liabilities: Accounts payable$
420.6
$
498.8
Short-term contract liabilities
69.3
71.4
Short-term debt and current portion of long-term debt
11.5
6.6
Other current liabilities
257.8
260.1
Total Current Liabilities
759.2
836.9
Long-term debt
1,537.1
1,535.5
Accrued postretirement benefits
305.4
318.4
Pension liabilities
669.6
730.0
Deferred income taxes
15.1
12.9
Other long-term liabilities
124.3
76.5
Total Liabilities
3,410.7
3,510.2
Total ATI stockholders' equity
2,026.4
1,885.7
Noncontrolling interests
112.2
105.9
Total Equity
2,138.6
1,991.6
Total Liabilities and Equity$
5,549.3
$
5,501.8
Allegheny Technologies Incorporated and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited, dollars in millions)Six Months Ended
June 30
2019
2018
Operating Activities: Net income$
94.8
$
136.1
Depreciation and amortization
77.6
78.7
Deferred taxes
2.7
0.1
Gains from disposal of property, plant and equipment, net
(28.3
)
(0.4
)
Loss from sale of businesses
7.7
-
Change in managed working capital
(158.8
)
(127.8
)
Change in retirement benefits
(34.2
)
2.9
Accrued liabilities and other
(65.9
)
(54.6
)
Cash (used in) provided by operating activities
(104.4
)
35.0
Investing Activities: Purchases of property, plant and equipment
(51.3
)
(70.6
)
Proceeds from sale of businesses, net of transaction costs
33.4
-
Proceeds from disposal of property, plant and equipment
29.4
1.0
Other
(0.1
)
(0.2
)
Cash provided by (used in) investing activities
11.4
(69.8
)
Financing Activities: Borrowings on long-term debt
-
7.1
Payments on long-term debt and finance leases
(3.3
)
(2.8
)
Net borrowings under credit facilities
5.4
3.4
Sale to noncontrolling interests
-
14.4
Taxes on share-based compensation and other
(9.9
)
(6.5
)
Cash (used in) provided by financing activities
(7.8
)
15.6
Decrease in cash and cash equivalents
(100.8
)
(19.2
)
Cash and cash equivalents at beginning of period
382.0
141.6
Cash and cash equivalents at end of period
$
281.2
$
122.4
Allegheny Technologies Incorporated and Subsidiaries Revenue by Market (Unaudited, dollars in millions)
Three Months Ended
Six Months Ended
June 30
June 30
June 30
June 30
2019
2018
2019
2018
Market Aerospace & Defense: Jet Engines$
308.3
28
%
$
287.0
28
%
$
588.3
28
%
$
563.7
28
%
Airframes
171.3
16
%
128.5
13
%
323.6
16
%
248.9
13
%
Government Aerospace & Defense
92.6
9
%
66.4
7
%
185.9
9
%
131.8
7
%
Total Aerospace & Defense$
572.2
53
%
$
481.9
48
%
$
1,097.8
53
%
$
944.4
48
%
Oil & Gas
136.0
13
%
132.7
13
%
248.8
12
%
285.3
14
%
Energy
77.4
7
%
68.2
7
%
133.1
6
%
120.4
6
%
Automotive
73.6
7
%
80.4
8
%
150.5
7
%
159.5
8
%
Construction/Mining
52.6
5
%
55.9
6
%
110.5
5
%
111.5
6
%
Food Equipment & Appliances
49.6
5
%
63.6
6
%
102.8
5
%
122.5
6
%
Medical
42.4
4
%
50.0
5
%
88.5
4
%
94.9
5
%
Electronics/Computers/Communications
38.1
3
%
35.5
3
%
72.2
4
%
68.4
3
%
Other
38.5
3
%
41.3
4
%
81.0
4
%
81.6
4
%
Total$
1,080.4
100
%
$
1,009.5
100
%
$
2,085.2
100
%
$
1,988.5
100
%
Allegheny Technologies Incorporated and Subsidiaries Selected Financial Data (Unaudited)Three Months Ended
Six Months Ended
June 30
March 31
June 30
June 30
June 30
2019
2019
2018
2019
2018
Percentage of Total ATI Sales High-Value Products Nickel-based alloys and specialty alloys
33
%
30
%
30
%
31
%
30
%
Precision forgings, castings and components
19
%
19
%
20
%
19
%
21
%
Titanium and titanium-based alloys
18
%
19
%
16
%
18
%
16
%
Precision and engineered strip
12
%
13
%
13
%
13
%
13
%
Zirconium and related alloys
6
%
6
%
6
%
6
%
5
%
Total High-Value Products
88
%
87
%
85
%
87
%
85
%
Standard Products Standard stainless products
12
%
13
%
15
%
13
%
15
%
Grand Total
100
%
100
%
100
%
100
%
100
%
Note: FRP conversion services are excluded from this presentation.Three Months Ended
Six Months Ended
June 30
March 31
June 30
June 30
June 30
Shipment Volume:2019
2019
2018
2019
2018
Flat Rolled Products (000's lbs.) High value
89,865
82,178
84,564
172,043
168,607
Standard
92,850
92,638
105,006
185,488
214,255
Flat Rolled Products total
182,715
174,816
189,570
357,531
382,862
Average Selling Prices: Flat Rolled Products (per lb.) High value
$
3.30
$
3.27
$
3.13
$
3.29
$
3.21
Standard
$
1.41
$
1.37
$
1.42
$
1.39
$
1.34
Flat Rolled Products combined average
$
2.34
$
2.26
$
2.19
$
2.30
$
2.17
Allegheny Technologies Incorporated and Subsidiaries Computation of Basic and Diluted Earnings Per Share Attributable to ATI (Unaudited, in millions, except per share amounts)
Three Months Ended
Six Months Ended
June 30
March 31
June 30
June 30
June 30
2019
2019
2018
2019
2018
Numerator for Basic net income per common share - Net income attributable to ATI$
75.1
$
15.0
$
72.8
$
90.1
$
130.8
Effect of dilutive securities: 4.75% Convertible Senior Notes due 2022
3.2
-
3.2
6.5
6.4
Numerator for Diluted net income per common share - Net income attributable to ATI after assumed conversions$
78.3
$
15.0
$
76.0
$
96.6
$
137.2
Denominator for Basic net income per common share - Weighted average shares outstanding
125.9
125.4
125.2
125.7
125.1
Effect of dilutive securities: Share-based compensation
0.6
0.7
0.7
0.6
0.6
4.75% Convertible Senior Notes due 2022
19.9
-
19.9
19.9
19.9
Denominator for Diluted net income per common share - Adjusted weighted average shares assuming conversions
146.4
126.1
145.8
146.2
145.6
Basic net income attributable to ATI per common share$
0.60
$
0.12
$
0.58
$
0.72
$
1.05
Diluted net income attributable to ATI per common share$
0.54
$
0.12
$
0.52
$
0.66
$
0.94
Allegheny Technologies Incorporated and Subsidiaries Other Financial Information Managed Working Capital (Unaudited, dollars in millions)June 30
December 31
2019
2018
Accounts receivable$
581.4
$
527.8
Short-term contract assets
40.9
51.2
Inventory
1,217.5
1,211.1
Accounts payable
(420.6
)
(498.8
)
Short-term contract liabilities
(69.3
)
(71.4
)
Subtotal
1,349.9
1,219.9
Allowance for doubtful accounts
5.0
6.0
LIFO reserve
(13.9
)
(2.9
)
Inventory reserves
91.0
88.5
Net managed working capital held for sale
38.3
-
Managed working capital
$
1,470.3
$
1,311.5
Annualized prior 3 months sales
$
4,321.9
$
4,151.3
Managed working capital as a % of annualized sales
34.0
%
31.6
%
June 30, 2019 change in managed working capital$
158.8
As part of managing the liquidity in our business, we focus on controlling managed working capital, which is defined as gross accounts receivable, short-term contract assets and gross inventories, less accounts payable and short-term contract liabilities. In measuring performance in controlling this managed working capital, we exclude the effects of LIFO and other inventory valuation reserves and reserves for uncollectible accounts receivable which, due to their nature, are managed separately. The June 30, 2019 amounts include managed working capital balances held for sale for ATI Cast Products. Allegheny Technologies Incorporated and Subsidiaries Other Financial Information Debt to Capital (Unaudited, dollars in millions)
June 30
December 31
2019
2018
Total debt (a)$
1,557.6
$
1,552.5
Less: Cash
(281.2
)
(382.0
)
Net debt$
1,276.4
$
1,170.5
Net debt
$
1,276.4
$
1,170.5
Total ATI stockholders' equity
2,026.4
1,885.7
Net ATI capital
$
3,302.8
$
3,056.2
Net debt to ATI capital
38.6
%
38.3
%
Total debt (a)$
1,557.6
$
1,552.5
Total ATI stockholders' equity
2,026.4
1,885.7
Total ATI capital
$
3,584.0
$
3,438.2
Total debt to total ATI capital
43.5
%
45.2
%
(a) Excludes debt issuance costs. In managing the overall capital structure of the Company, some of the measures that we focus on are net debt to net capitalization, which is the percentage of debt, net of cash that may be available to reduce borrowings, to the total invested and borrowed capital of ATI (excluding noncontrolling interest), and total debt to total ATI capitalization, which excludes cash balances. Allegheny Technologies Incorporated and SubsidiariesNon-GAAP Financial Measures
(Unaudited, dollars in millions, except per share amounts)
The Company reports its financial results in accordance with accounting principles generally accepted in the United States of America ("GAAP"). However, management believes that certain non-GAAP financial measures, used in managing the business, may provide users of this financial information with additional meaningful comparisons between current results and results in prior periods. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the Company's reported results prepared in accordance with GAAP. The following table provides the calculation of the non-GAAP financial measures discussed in the Company's press release dated July 23, 2019:
Three Months Ended
June 30
2019
Net income attributable to ATI$
75.1
Adjust for special items: Gain on sale of oil & gas rights (a)
$
(27.3
)
Loss on sale of industrial forgings business (b)
7.2
Net income attributable to ATI excluding special items
$
55.0
Per Diluted Share * Net income attributable to ATI
$
0.54
Adjust for special items: Gain on sale of oil & gas rights
$
(0.19
)
Loss on sale of industrial forgings business
0.05
Net income attributable to ATI excluding special items
$
0.40
* Presentation of adjusted results per diluted share includes the effects of convertible debt, if dilutive. (a) Second quarter 2019 results include a $29.3 million pre-tax gain on the sale of oil & gas rights in New Mexico. (b) Second quarter 2019 results include a $7.7 million pre-tax loss on the sale of the industrial forgings business, including $10.4 million of allocated goodwill. Free cash flow as defined by ATI includes the total of cash provided by (used in) operating activities and investing activities as presented on the consolidated statements of cash flows, adjusted to exclude cash contributions to the Company's U.S. qualified defined benefit pension plans.
View source version on businesswire.com: https://www.businesswire.com/news/home/20190723005488/en/
Investor Contact: Scott A. Minder 412-395-2720 scott.minder@atimetals.com
Media Contact: Natalie Gillespie 412-394-2850 natalie.gillespie@atimetals.com www.ATImetals.com
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