10-QPeriod: Q1 FY2010

ATI INC Quarterly Report for Q1 Ended Mar 31, 2010

Filed May 7, 2010For Securities:ATI

Summary

ATI Inc. reported a significant turnaround in the first quarter of 2010, with net income attributable to ATI reaching $18.2 million ($0.18 per share), a substantial improvement from the $5.9 million ($0.06 per share) reported in the first quarter of 2009. This recovery was driven by a 8.2% increase in total sales to $899.4 million, fueled by stronger performance in the Flat-Rolled Products and Engineered Products segments, alongside higher raw material surcharges and average selling prices. The company's High Performance Metals segment, while seeing a revenue decline year-over-year, showed improved operating profit margin, benefiting from better raw material cost management and cost reductions. Despite a positive operational rebound, the company incurred a non-recurring tax charge of $5.3 million related to the Patient Protection and Affordable Care Act. ATI is actively investing in its future, with significant capital expenditures planned, including a major expansion of its specialty metals hot rolling and processing facility. The company maintains a solid balance sheet with $563.5 million in cash and manageable debt levels, positioning it to navigate the ongoing economic recovery and capitalize on anticipated growth in its key markets, particularly aerospace and defense, oil and gas, and electrical energy.

Financial Highlights

48 data points
Beta

Revenue

$899.40M

13.5% Gross Margin

Net Income

$18.20M

2.0% Net Margin

EPS (Diluted)

$0.18

Total Assets

$4.40B

Cash & Equivalents

$563.50M

Free Cash Flow

-$72.00M

Financial Statements
Beta
Revenue$899.40M
Cost of Revenue$778.00M
Gross Profit$121.40M
SG&A Expenses$74.20M
Operating Income$47.20M
Net Income$18.20M
EPS (Basic)$0.19
EPS (Diluted)$0.18
Shares Outstanding (Basic)98.32M
Shares Outstanding (Diluted)98.70M

Key Highlights

  • 1Total sales increased by 8.2% to $899.4 million in Q1 2010 compared to Q1 2009, indicating a recovery from the previous year.
  • 2Net income attributable to ATI was $18.2 million ($0.18 per share), a significant improvement from $5.9 million ($0.06 per share) in Q1 2009.
  • 3The Flat-Rolled Products segment saw a substantial 37% sales increase, and the Engineered Products segment grew by 23%, highlighting strong demand in these areas.
  • 4High Performance Metals segment sales decreased by 22%, largely due to lower demand from the commercial aerospace market, but operating profit margin improved.
  • 5The company reported $563.5 million in cash and cash equivalents at the end of the quarter, reflecting a strong liquidity position.
  • 6ATI is undertaking significant capital expenditures, including a new advanced specialty metals hot rolling and processing facility, signaling investment in future growth and capabilities.
  • 7A $5.3 million non-recurring tax charge related to the Patient Protection and Affordable Care Act impacted Q1 2010 net income.

Frequently Asked Questions

ATI's improved performance was driven by a broad-based increase in sales across its Flat-Rolled Products and Engineered Products segments, higher raw material surcharges, and improved average base selling prices. The company also benefited from better cost management, including gross cost reductions and a more favorable matching of raw material costs with surcharges, particularly in the High Performance Metals segment.

The Flat-Rolled Products segment experienced a significant 37% increase in sales, and the Engineered Products segment saw a 23% rise, both indicating strong demand recovery. The High Performance Metals segment, however, saw a 22% decrease in sales due to lower demand from commercial aerospace, though its operating profit margin improved due to cost management and better raw material cost synchronization.

ATI views 2010 as a transition year from the 2009 contraction to the resumption of secular growth trends. The company expects steady quarter-on-quarter improvement, with continued recovery in orders for premium-titanium and nickel-based alloys in the High Performance Metals segment, and stable demand from the airframe supply chain. Order inquiries for exotic alloys are also increasing, with shipments expected to improve in the second half of the year.

Key risks include material adverse changes in economic or industry conditions, particularly in the markets ATI serves (aerospace, defense, energy, etc.). Volatility in raw material and energy prices can impact profitability, especially with the company's use of the LIFO inventory method which can create timing mismatches. Investments in new facilities also carry risks of cost overruns or delays. Additionally, the report notes a $5.3 million non-recurring tax charge related to the new healthcare law, highlighting regulatory risks.