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Share Name | Share Symbol | Market | Type |
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ATI Inc | NYSE:ATI | NYSE | Common Stock |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
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0.00 | 0.00% | 59.08 | 0 | 01:00:00 |
Allegheny Technologies Incorporated (NYSE: ATI) reported third quarter 2017 sales of $869 million and a net loss attributable to ATI of $121.2 million, or $(1.12) per share. ATI’s third quarter 2017 results include a previously-announced non-cash goodwill impairment charge of $113.6 million, net of tax, or $(1.05) per share, for ATI’s cast products business, which was excluded from business segment results. Excluding this charge, the net loss attributable to ATI was $7.6 million, or $(0.07) per share. Business segment operating profit, which excludes the goodwill impairment charge, was $54.4 million, or 6.3% of sales.
“The commercial aerospace ramp remains on track. Third quarter sales of our jet engine products within our High Performance Materials & Components (HPMC) segment grew 13% year over year, including a 25% increase in forged products. Strong sales of next-generation jet engine products, which were 39% of HPMC segment jet engine sales, drove third quarter segment operating profit margin to 12% of sales, nearly 200 basis points higher than the prior year,” said Rich Harshman, Chairman, President and Chief Executive Officer. “As expected, our Flat Rolled Products (FRP) segment incurred an operating loss in the third quarter, which was $7 million, due primarily to out-of-phase raw material surcharges.”
“In our HPMC segment, sales of our specialty materials mill products, including powder, and forged products continue to meet our expectations. We continue to make good progress to meet elevated customer demand levels for aerospace titanium castings and expect our casting business to be at or near break-even for 2018, and return to profitability in 2019,” said Harshman. “Additionally, we are on track with the commercial qualification process at our new nickel-based powder alloys facility in North Carolina. HPMC segment results include $2 million of start-up costs for this facility in the third quarter 2017.
“Consistent with our expectations, our FRP segment’s third quarter results were negatively affected by falling raw material surcharges primarily due to steep declines in ferrochrome and nickel. This rapid deterioration adversely impacted profit margins due to out-of-phase raw material surcharges. Sales were up modestly compared to the prior quarter, as higher shipment volumes were mostly offset by lower transactional selling prices, primarily as a result of the lower surcharges. Despite this raw material cost volatility, we continue to grow our sales mix of high-value products, which represented 64% of FRP segment sales in the third quarter 2017.
“At September 30, 2017, cash on hand was $125 million and available additional liquidity under our asset-based lending (ABL) credit facility was approximately $280 million, with $25 million borrowed under the revolving credit portion. We generated $32 million of cash flow from operations in the third quarter, even with $19 million invested in additional managed working capital as we continue to ramp to higher production levels to support our business growth. Consistent with prior estimates, we expect 2017 capital expenditures will be $125 million, with $85 million expended through the third quarter.”
Strategy and Outlook
“We expect our HPMC segment results to sustain strong performance levels in commercial aerospace, with fourth quarter HPMC financial results to be modestly improved compared to the third quarter 2017. Looking ahead to 2018, we expect continued revenue growth and operating margin improvement in our HPMC segment resulting from continuing growth in demand from the aerospace market,” Harshman said. “We remain confident about increased demand for mill products, forgings, castings, and components related to the increasing jet engine build rates over the next several years. Our focus continues on operational execution and on meeting the requirements of the aerospace production ramp. We anticipate that the 2017 financial headwinds from our castings business and completion of the start-up and qualification of our new nickel alloys powder facility will provide meaningful profit improvement opportunities in 2018.
“We expect the FRP segment to benefit from stabilizing and increasing raw material prices in the fourth quarter, and to be modestly profitable for the quarter and for the full year 2017. We anticipate 2017’s operational improvements and product mix benefits will carry over into 2018, as we continue our efforts to position the FRP segment for sustainable profitability.
“Looking beyond 2017, we will be relentless in our continuing focus on enhancing ATI’s technology leadership in differentiated specialty materials products; generating healthy cash flow from operations; improving our competitive cost position; and strengthening our balance sheet. We continue to expect capital expenditures to average approximately $100 million annually for the next several years.”
Third Quarter 2017 Financial Results
Quarterly Results
Three Months Ended Sept. 30, June 30, Sept. 30, 2017 2017 2016 In Millions Sales $ 869.1 $ 880.2 $ 770.5 Income (loss) attributable to ATI $ (121.2 ) $ 10.1 $ (530.8 ) Goodwill impairment, net of tax (113.6 ) – – Restructuring and other charges, net of tax – – (329.1 ) Rowley excess operating costs, net of tax – – (6.1 ) Income tax items including valuation allowances – – (173.1 ) Income (loss) attributable to ATI before special items $ (7.6 ) $ 10.1 $ (22.5 ) Per Diluted Share Income (loss) attributable to ATI $ (1.12 ) $ 0.09 $ (4.95 ) Goodwill impairment, net of tax (1.05 ) – – Restructuring and other charges, net of tax – – (3.07 ) Rowley excess operating costs, net of tax – – (0.06 ) Income tax items including valuation allowances – – (1.61 ) Income (loss) attributable to ATI before special items $ (0.07 ) $ 0.09 $ (0.21 )High Performance Materials & Components Segment
Market Conditions
Third quarter 2017 compared to third quarter 2016
Flat Rolled Products Segment
Market Conditions
Third quarter 2017 compared to third quarter 2016
Corporate Expenses
Closed Operations and Other Expenses
Income Taxes
Allegheny Technologies will conduct a conference call with investors and analysts on Tuesday, October 24, 2017, 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, 2016, 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. With revenue of $3.4 billion for the twelve month period ending September 30, 2017, our largest market is aerospace & defense, particularly jet engines. We also have a strong presence in the oil & gas, electrical 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. ATI produces nickel-based alloys and superalloys, titanium alloys, specialty alloys, stainless steels, and zirconium and other related alloys in many mill product forms. We also are a leader in producing nickel-based alloy and titanium-based alloy powders for use in next-generation jet engine forgings and 3D-printed products. ATIMetals.com
Allegheny Technologies Incorporated and Subsidiaries Consolidated Statements of Operations (Unaudited, dollars in millions, except per share amounts) Three Months Ended Nine Months Ended September 30 June 30 September 30 September 30 September 30 2017 2017 2016 2017 2016 Sales $ 869.1 $ 880.2 $ 770.5 $ 2,615.2 $ 2,338.5 Cost of sales 775.8 767.9 720.3 2,296.8 2,273.3 Gross profit 93.3 112.3 50.2 318.4 65.2 Selling and administrative expenses 66.2 66.7 60.5 192.4 182.4 Impairment of goodwill 114.4 - - 114.4 - Restructuring charges - - 488.6 - 498.6 Operating income (loss) (87.3 ) 45.6 (498.9 ) 11.6 (615.8 ) Interest expense, net (34.2 ) (34.5 ) (32.6 ) (102.2 ) (91.2 ) Other income, net 0.2 0.2 - 3.7 1.8 Income (loss) before income taxes (121.3 ) 11.3 (531.5 ) (86.9 ) (705.2 ) Income tax benefit (1.9 ) (2.1 ) (4.3 ) (2.0 ) (64.4 ) Net income (loss) $ (119.4 ) $ 13.4 $ (527.2 ) $ (84.9 ) $ (640.8 ) Less: Net income attributable to noncontrolling interests 1.8 3.3 3.6 8.7 10.0 Net income (loss) attributable to ATI $ (121.2 ) $ 10.1 $ (530.8 ) $ (93.6 ) $ (650.8 ) Basic net income (loss) attributable to ATI per common share $ (1.12 ) $ 0.09 $ (4.95 ) $ (0.87 ) $ (6.07 ) Diluted net income (loss) attributable to ATI per common share $ (1.12 ) $ 0.09 $ (4.95 ) $ (0.87 ) $ (6.07 ) Weighted average common shares outstanding -- basic (millions) 107.7 107.7 107.3 107.7 107.3 Weighted average common shares outstanding -- diluted (millions) 107.7 128.3 107.3 107.7 107.3 Actual common shares outstanding-- end of period (millions) 108.9 108.9 108.9 108.9 108.9Allegheny Technologies Incorporated and Subsidiaries Sales and Operating Profit by Business Segment (Unaudited, dollars in millions) Three Months Ended Nine Months Ended September 30 June 30 September 30 September 30 September 30 2017 2017 2016 2017 2016 Sales: High Performance Materials & Components $ 512.9 $ 526.4 $ 461.8 $ 1,549.7 $ 1,453.2 Flat Rolled Products 356.2 353.8 308.7 1,065.5 885.3 Total External Sales $ 869.1 $ 880.2 $ 770.5 $ 2,615.2 $ 2,338.5 Operating Profit (Loss): High Performance Materials & Components $ 61.7 $ 68.0 $ 47.0 $ 180.6 $ 114.9 % of Sales 12.0 % 12.9 % 10.2 % 11.7 % 7.9 % Flat Rolled Products (7.3 ) 2.9 (20.8 ) 14.6 (162.2 ) % of Sales -2.0 % 0.8 % -6.7 % 1.4 % -18.3 % Operating Profit (Loss) 54.4 70.9 26.2 195.2 (47.3 ) % of Sales 6.3 % 8.1 % 3.4 % 7.5 % -2.0 % LIFO and net realizable value reserves (0.1 ) (0.1 ) - (0.2 ) 0.4 Corporate expenses (14.8 ) (11.8 ) (9.8 ) (36.9 ) (32.6 ) Closed operations and other expenses (12.2 ) (13.2 ) (15.4 ) (28.4 ) (24.6 ) Impairment of goodwill (114.4 ) - - (114.4 ) - Restructuring and other charges - - (499.9 ) - (509.9 ) Interest expense, net (34.2 ) (34.5 ) (32.6 ) (102.2 ) (91.2 ) Income (loss) before income taxes $ (121.3 ) $ 11.3 $ (531.5 ) $ (86.9 ) $ (705.2 )
Allegheny Technologies Incorporated and Subsidiaries Condensed Consolidated Balance Sheets (Unaudited, dollars in millions) September 30, December 31, 2017 2016 ASSETS Current Assets: Cash and cash equivalents $ 124.9 $ 229.6 Accounts receivable, net of allowances for doubtful accounts 525.9 452.1 Inventories, net 1,101.1 1,037.0 Prepaid expenses and other current assets 52.2 47.8 Total Current Assets 1,804.1 1,766.5 Property, plant and equipment, net 2,490.9 2,498.9 Goodwill 531.9 641.9 Other assets 248.2 262.7 Total Assets $ 5,075.1 $ 5,170.0 LIABILITIES AND EQUITY Current Liabilities: Accounts payable $ 350.5 $ 294.3 Accrued liabilities 286.7 309.3 Short term debt and current portion of long-term debt 36.4 105.1 Total Current Liabilities 673.6 708.7 Long-term debt 1,877.7 1,771.9 Accrued postretirement benefits 303.2 317.7 Pension liabilities 678.2 827.9 Deferred income taxes 14.1 15.6 Other long-term liabilities 80.8 83.4 Total Liabilities 3,627.6 3,725.2 Total ATI stockholders' equity 1,347.8 1,355.2 Noncontrolling interests 99.7 89.6 Total Equity 1,447.5 1,444.8 Total Liabilities and Equity $ 5,075.1 $ 5,170.0
Allegheny Technologies Incorporated and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited, dollars in millions) Nine Months Ended September 30 2017 2016 Operating Activities: Net loss $ (84.9 ) $ (640.8 ) Depreciation and amortization 120.7 130.2 Impairment of goodwill 114.4 - Non-cash restructuring and other charges - 471.3 Deferred taxes 1.7 (78.1 ) Change in managed working capital (81.5 ) 39.0 Change in retirement benefits (a) (117.6 ) (94.6 ) Accrued liabilities and other (6.6 ) 61.3 Cash used in operating activities (53.8 ) (111.7 ) Investing Activities: Purchases of property, plant and equipment (85.3 ) (174.9 ) Asset disposals and other 3.2 2.1 Cash used in investing activities (82.1 ) (172.8 ) Financing Activities: Borrowings on long-term debt 8.5 387.5 Payments on long-term debt and capital leases (1.9 ) (2.4 ) Net borrowings under credit facilities 28.0 2.4 Debt issuance costs (0.8 ) (10.4 ) Dividends paid to shareholders - (25.8 ) Dividends paid to noncontrolling interests - (16.0 ) Sale (purchase) of noncontrolling interests 2.2 (12.2 ) Taxes on share-based compensation and other (4.8 ) - Cash provided by financing activities 31.2 323.1 Increase (decrease) in cash and cash equivalents (104.7 ) 38.6 Cash and cash equivalents at beginning of period 229.6 149.8 Cash and cash equivalents at end of period $ 124.9 $ 188.4 (a) Includes $(135) million contribution to the U.S. defined benefit pension plan in 2017 and $(115) million contribution to the U.S. defined benefit pension plan in 2016.
Allegheny Technologies Incorporated and Subsidiaries Selected Financial Data (Unaudited) Three Months Ended Nine Months Ended September 30 June 30 September 30 September 30 September 30 2017 2017 2016 2017 2016 Percentage of Total ATI Sales High-Value Products Nickel-based alloys and specialty alloys 28 % 27 % 26 % 27 % 27 % Precision forgings, castings and components 19 % 19 % 17 % 19 % 18 % Titanium and titanium-based alloys 17 % 16 % 19 % 17 % 20 % Precision and engineered strip 14 % 13 % 15 % 14 % 13 % Zirconium and related alloys 6 % 7 % 7 % 6 % 8 % Total High-Value Products, excluding GOES 84 % 82 % 84 % 83 % 86 % Grain-oriented electrical steel (GOES) 0 % 0 % 0 % 0 % 1 % Total High-Value Products, including GOES 84 % 82 % 84 % 83 % 87 % Standard Products Stainless steel sheet 9 % 9 % 11 % 9 % 7 % Specialty stainless sheet 4 % 5 % 2 % 4 % 3 % Stainless steel plate and other 3 % 4 % 3 % 4 % 3 % Total Standard Products 16 % 18 % 16 % 17 % 13 % Grand Total 100 % 100 % 100 % 100 % 100 % Three Months Ended Nine Months Ended September 30 June 30 September 30 September 30 September 30 Shipment Volume: 2017 2017 2016 2017 2016 Flat Rolled Products (000's lbs.) High value* 83,637 74,089 73,481 233,059 217,881 Standard 115,907 114,677 102,252 345,569 272,846 Flat Rolled Products total 199,544 188,766 175,733 578,628 490,727 Average Selling Prices: Flat Rolled Products (per lb.) High value* $ 2.69 $ 2.84 $ 2.64 $ 2.76 $ 2.61 Standard $ 1.13 $ 1.23 $ 1.10 $ 1.20 $ 1.04 Flat Rolled Products combined average $ 1.78 $ 1.86 $ 1.75 $ 1.83 $ 1.73 * High value products exclude GOES for the quarter and nine months ended September 30, 2016.
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 Nine Months Ended September 30 June 30 September 30 September 30 September 30 2017 2017 2016 2017 2016 Numerator for Basic net income (loss) per common share - Net income (loss) attributable to ATI $ (121.2 ) $ 10.1 $ (530.8 ) $ (93.6 ) $ (650.8 ) Effect of dilutive securities: 4.75% Convertible Senior Notes due 2022 - 1.8 - - - Numerator for Diluted net income (loss) per common share - Net income (loss) attributable to ATI after assumed conversions $ (121.2 ) $ 11.9 $ (530.8 ) $ (93.6 ) $ (650.8 ) Denominator for Basic net income (loss) per common share - Weighted average shares outstanding 107.7 107.7 107.3 107.7 107.3 Effect of dilutive securities: Share-based compensation - 0.7 - - - 4.75% Convertible Senior Notes due 2022 - 19.9 - - - Denominator for Diluted net income (loss) per common share - Adjusted weighted average shares assuming conversions 107.7 128.3 107.3 107.7 107.3 Basic net income (loss) attributable to ATI per common share $ (1.12 ) $ 0.09 $ (4.95 ) $ (0.87 ) $ (6.07 ) Diluted net income (loss) attributable to ATI per common share $ (1.12 ) $ 0.09 $ (4.95 ) $ (0.87 ) $ (6.07 )
Allegheny Technologies Incorporated and Subsidiaries Other Financial Information Managed Working Capital (Unaudited, dollars in millions) September 30 December 31 2017 2016 Accounts receivable $ 525.9 $ 452.1 Inventory 1,101.1 1,037.0 Accounts payable (350.5 ) (294.3 ) Subtotal 1,276.5 1,194.8 Allowance for doubtful accounts 5.9 7.3 LIFO reserve (45.8 ) (97.3 ) Inventory reserves 118.7 169.0 Managed working capital $ 1,355.3 $ 1,273.8 Annualized prior 3 months sales $ 3,476.5 $ 3,184.2 Managed working capital as a % of annualized sales 39.0 % 40.0 % September 30, 2017 change in managed working capital $ 81.5
As part of managing the liquidity in our business, we focus on controlling managed working capital, which is defined as gross accounts receivable and gross inventories, less accounts payable. 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.
Allegheny Technologies Incorporated and Subsidiaries Other Financial Information Debt to Capital (Unaudited, dollars in millions) September 30 December 31 2017 2016 Total debt (a) $ 1,929.3 $ 1,894.1 Less: Cash (124.9 ) (229.6 ) Net debt $ 1,804.4 $ 1,664.5 Net debt $ 1,804.4 $ 1,664.5 Total ATI stockholders' equity 1,347.8 1,355.2 Net ATI capital $ 3,152.2 $ 3,019.7 Net debt to ATI capital 57.2 % 55.1 % Total debt (a) $ 1,929.3 $ 1,894.1 Total ATI stockholders' equity 1,347.8 1,355.2 Total ATI capital $ 3,277.1 $ 3,249.3 Total debt to total ATI capital 58.9 % 58.3 % (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 October 24, 2017:
Three Months Ended September 30 September 30 2017 2016 Loss attributable to ATI $ (121.2 ) $ (530.8 ) Adjustments: Impairment of goodwill, net of tax (a) (113.6 ) - Restructuring and other charges, net of tax (b) - (329.1 ) Rowley excess operating costs, net of tax (c) - (6.1 ) Income tax items including valuation allowances (d) - (173.1 ) Loss attributable to ATI excluding special items $ (7.6 ) $ (22.5 ) Per Diluted Share Loss attributable to ATI $ (1.12 ) $ (4.95 ) Adjustments: Impairment of goodwill, net of tax (a) (1.05 ) - Restructuring and other charges, net of tax (b) - (3.07 ) Rowley excess operating costs, net of tax (c) - (0.06 ) Income tax items including valuation allowances (d) - (1.61 ) Loss attributable to ATI excluding special items $ (0.07 ) $ (0.21 )(a) During the third quarter of 2017, the Company performed an interim goodwill impairment analysis, as required by accounting standards, for our Cast Products business and determined that all goodwill assigned to this business unit was impaired. As a result, the Company recorded a $114.4 pre-tax non-cash goodwill impairment charge ($113.6 after-tax), or $(1.05) per share.
(b) Restructuring and other charges for the three months ended September 30, 2016 include $471.3 of pre-tax asset impairment charges ($310.3 after-tax), or $(2.89) per share, and $28.6 of pre-tax shutdown, idling and employee benefit costs ($18.8 after-tax), or $(0.18) per share for the Rowley, UT facility.(c) During the third quarter of 2016, the Company indefinitely idled its titanium sponge production facility in Rowley, UT. These amounts represent the above-market production costs and other operating expenses for this facility for the period indicated, net of expected ongoing carrying costs, and have been adjusted out of the Company's GAAP amounts to provide Company results that are more representative of the future, which will exclude these costs.
(d) Amounts for the three months ended September 30, 2016 include $173.1, or $(1.61) per share, of income tax valuation allowances recorded on U.S. federal deferred tax assets due to cumulative losses from U.S. operations.
View source version on businesswire.com: http://www.businesswire.com/news/home/20171024005851/en/
Allegheny Technologies IncorporatedScott Minder, 412-395-2720
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