10-QPeriod: Q2 FY2012

ATI INC Quarterly Report for Q2 Ended Jun 30, 2012

Filed August 3, 2012For Securities:ATI

Summary

Allegheny Technologies Incorporated (ATI) reported its second quarter 2012 financial results, indicating a slight year-over-year increase in total sales to $1.36 billion, driven by growth in the High Performance Metals and Engineered Products segments, partially offset by a decline in Flat-Rolled Products. Net income attributable to ATI decreased to $56.4 million ($0.50 per share) from $64.0 million ($0.59 per share) in the prior year quarter. This decline was primarily attributed to higher retirement benefit expenses, influenced by a lower discount rate and lower expected returns on plan assets, and the absence of prior year acquisition-related expenses. The company experienced an increase in its inventory levels, impacting working capital, and continues to invest significantly in capital expenditures, notably the new Hot-Rolling and Processing Facility. Despite near-term headwinds from slower global economic growth and economic uncertainties, ATI maintains a positive outlook, emphasizing its diversified product portfolio, focus on high-value global markets with strong secular growth, and unique integrated capabilities. The company expects sales and earnings to trough in the third quarter of 2012, with expectations for a recovery driven by aerospace, oil and gas, and chemical process industry demand. ATI ended the quarter with $210.3 million in cash and cash equivalents, and its financial position remains solid, with key leverage ratios within covenant requirements.

Financial Highlights

49 data points
Beta

Revenue

$1.26B

14.1% Gross Margin

Net Income

$56.40M

4.5% Net Margin

EPS (Diluted)

$0.50

Total Assets

$6.08B

Cash & Equivalents

$210.30M

Free Cash Flow

$78.00M

Financial Statements
Beta
Revenue$1.26B
Cost of Revenue$1.16B
Gross Profit$177.60M
SG&A Expenses$90.70M
Operating Income$108.20M
Net Income$56.40M
EPS (Basic)$0.53
EPS (Diluted)$0.50
Shares Outstanding (Basic)107.13M
Shares Outstanding (Diluted)116.60M

Key Highlights

  • 1Total sales for Q2 2012 were $1.36 billion, a slight increase from $1.35 billion in Q2 2011, driven by the High Performance Metals and Engineered Products segments.
  • 2Net income attributable to ATI decreased to $56.4 million ($0.50/share) in Q2 2012 from $64.0 million ($0.59/share) in Q2 2011.
  • 3Higher retirement benefit expenses, up by $7.3 million net of tax ($0.06/share) year-over-year, were a significant factor in the reduced net income.
  • 4Inventories increased by $128.3 million in the first half of 2012, contributing to a $205.4 million increase in managed working capital.
  • 5Capital expenditures were $165.7 million for the first six months of 2012, with significant ongoing investment in the Hot-Rolling and Processing Facility.
  • 6The company forecasts sales and earnings to trough in Q3 2012, expecting a recovery driven by key markets like aerospace and oil & gas.
  • 7Total debt stood at $1.50 billion, with net debt to total capitalization at 33.4% as of June 30, 2012.

Frequently Asked Questions

Sales increased slightly year-over-year, primarily driven by a 14% increase in the High Performance Metals segment due to aerospace demand and the ATI Ladish acquisition, and a 5% increase in the Engineered Products segment from oil and gas, and construction and mining markets. This was partially offset by a 10% decline in the Flat-Rolled Products segment.

The decrease in net income was mainly due to higher retirement benefit expenses, which increased by $7.3 million net of tax ($0.06 per share). This increase was primarily caused by the adoption of a lower discount rate for valuing retirement benefit obligations and lower than expected returns on plan assets. Additionally, the prior year quarter benefited from acquisition-related expenses that did not recur.

ATI anticipates that sales and earnings will reach their lowest point in the third quarter of 2012 due to slower global economic growth, economic uncertainties in Europe, and seasonal summer slowdowns. However, the company expects a recovery in the fourth quarter and beyond, driven by strong demand in key markets such as aerospace, oil and gas, and the chemical process industry.

ATI experienced an increase in managed working capital by $205.4 million in the first half of 2012, primarily due to higher accounts receivable and inventories. The company is making significant capital investments, with $165.7 million spent in the first half of 2012, largely for its new Hot-Rolling and Processing Facility, and anticipates total capital expenditures of approximately $485 million for the full year, which it expects to fund through operating cash flow and existing cash.