10-QPeriod: Q2 FY2008

ATI INC Quarterly Report for Q2 Ended Jun 30, 2008

Filed August 5, 2008For Securities:ATI

Summary

Allegheny Technologies Incorporated (ATI) reported its financial results for the second quarter and first six months ended June 30, 2008. The company experienced a decrease in net income and earnings per share compared to the same periods in 2007. While sales remained relatively stable year-over-year for the six-month period, a significant decline in segment operating profit was observed. This decrease was attributed to factors including less favorable raw material cost adjustments, increased competition, and a less favorable product mix. Despite these challenges, ATI continues to invest significantly in capital expenditures to expand its production capabilities, particularly for high-demand aerospace and infrastructure markets. ATI ended the quarter with a healthy cash position of $310.2 million, though this was a decrease from the prior year-end due to substantial capital investments, share repurchases, and dividend payments. The company maintains a strong balance sheet with manageable debt levels. Management expressed confidence in their ability to navigate the uncertain economic environment, citing diversification and global reach as key strengths, and projected full-year 2008 earnings per share between $5.80 and $6.10, positioning it as the second-best year in the company's history.

Financial Highlights

26 data points
Beta

Revenue

$1.46B

22.7% Gross Margin

Net Income

$168.90M

11.6% Net Margin

EPS (Diluted)

$1.66

Cash & Equivalents

$310.20M

Free Cash Flow

$96.30M

Financial Statements
Beta
Revenue$1.46B
Cost of Revenue$1.13B
Gross Profit$332.30M
SG&A Expenses$79.20M
Operating Income$253.10M
Net Income$168.90M
EPS (Basic)$1.68
EPS (Diluted)$1.66

Key Highlights

  • 1Net income for the six months ended June 30, 2008, was $310.9 million, down from $404.3 million in the prior year.
  • 2Diluted EPS for the six months ended June 30, 2008, was $3.06, compared to $3.93 in the same period of 2007.
  • 3Total sales for the six months were $2,804.6 million, slightly down from $2,843.9 million in the prior year.
  • 4Segment operating profit decreased by 27% for the first six months of 2008 compared to 2007, to $511.4 million.
  • 5The company invested $255.4 million in capital expenditures during the first six months of 2008, with a full-year projection of approximately $550 million.
  • 6Cash and cash equivalents stood at $310.2 million at June 30, 2008, a decrease from $623.3 million at December 31, 2007.
  • 7The company repurchased $88.4 million of its common stock in the first half of 2008 and paid $36.4 million in dividends.

Frequently Asked Questions

The decrease in segment operating profit was primarily attributed to lower and less volatile raw material costs on products that use index or surcharge pricing mechanisms, meaning the pricing was not as favorable compared to manufacturing cycle times as in the prior year. Other contributing factors included more competitive pricing for certain products and an unfavorable product mix.

ATI significantly increased its capital expenditures for the first six months of 2008, spending $255.4 million. The company projected total capital expenditures for 2008 to be approximately $550 million, plus an additional $95 million for its Chinese joint venture, STAL. These investments are aimed at expanding production capabilities for key growth markets like aerospace and infrastructure, particularly for titanium and nickel-based alloys. The timeline for the Rowley, UT premium-grade titanium sponge facility was slightly delayed to the first quarter of 2009.

Despite an uncertain U.S. economy, ATI expressed confidence in its position due to product and market diversification and global reach. Management projected full-year 2008 earnings per share to be in the range of $5.80 to $6.10, which would represent the second-best year in the company's history.

ATI uses a LIFO (last-in, first-out) inventory valuation method for most of its inventory, which can impact reported costs when raw material prices are volatile. For the first six months of 2008, managed working capital increased due to higher accounts receivable and inventory levels, partly due to increased business activity and a planned inventory build. The company focuses on controlling managed working capital as a percentage of annualized sales, which remained relatively stable at 31.8% as of June 30, 2008.