10-QPeriod: Q3 FY2012

ATI INC Quarterly Report for Q3 Ended Sep 30, 2012

Filed November 2, 2012For Securities:ATI

Summary

Allegheny Technologies Incorporated (ATI) reported its third-quarter and nine-month results for the period ending September 30, 2012. The company experienced a year-over-year decline in sales for the third quarter, reporting $1.22 billion compared to $1.35 billion in the prior year. This decline was primarily driven by lower raw material surcharges and reduced shipments in the Flat-Rolled Products segment, as well as weaker demand in the Engineered Products segment. However, the High Performance Metals segment saw a slight increase in sales. Net income attributable to ATI for the third quarter was $35.3 million ($0.32 per share), a decrease from $62.3 million ($0.56 per share) in the same period last year. This reduction was influenced by higher retirement benefit expenses, which significantly impacted profitability. Despite the challenging economic environment and anticipated continued softness in the fourth quarter, ATI remains focused on long-term value creation, driven by its diversified portfolio of specialty metals and its strategic investments in advanced manufacturing capabilities, particularly the Hot-Rolling and Processing Facility (HRPF). The company anticipates full-year sales to be in the range of $5.0 to $5.1 billion.

Financial Highlights

49 data points
Beta

Revenue

$1.13B

12.6% Gross Margin

Net Income

$35.30M

3.1% Net Margin

EPS (Diluted)

$0.32

Total Assets

$6.08B

Cash & Equivalents

$281.00M

Free Cash Flow

$186.00M

Financial Statements
Beta
Revenue$1.13B
Cost of Revenue$988.80M
Gross Profit$142.70M
SG&A Expenses$77.60M
Operating Income$65.10M
Net Income$35.30M
EPS (Basic)$0.33
EPS (Diluted)$0.32
Shares Outstanding (Basic)107.19M
Shares Outstanding (Diluted)116.70M

Key Highlights

  • 1Total sales for the third quarter of 2012 decreased to $1.22 billion from $1.35 billion in the prior year's quarter.
  • 2Net income attributable to ATI for the third quarter was $35.3 million ($0.32 per share), down from $62.3 million ($0.56 per share) in Q3 2011.
  • 3Higher retirement benefit expense ($7.5 million net of tax) was a significant factor impacting the year-over-year decline in net income.
  • 4The High Performance Metals segment showed a slight sales increase, while Flat-Rolled Products and Engineered Products segments experienced sales declines.
  • 5The company is making significant capital expenditures, including the ongoing construction of its Hot-Rolling and Processing Facility (HRPF), expected to be completed by the end of 2013.
  • 6Total debt stood at $1,479.3 million as of September 30, 2012, with net debt to total capitalization at 31.2%.
  • 7ATI projects challenging business conditions to continue through the fourth quarter of 2012, with full-year sales expected to be between $5.0 and $5.1 billion.

Frequently Asked Questions

The primary driver for the decrease in net income was higher retirement benefit expense, which increased by $7.5 million (net of tax) in the third quarter of 2012 compared to the same period in 2011. Additionally, lower sales and a less favorable product mix contributed to the decline.

ATI utilizes raw material surcharges and index mechanisms on a majority of its products to offset increased raw material costs. For energy prices, the company incorporates energy surcharges and uses financial derivatives to hedge against price volatility. As of September 30, 2012, ATI had hedged a significant portion of its forecasted natural gas requirements and some electricity needs.

ATI expects business conditions to remain challenging through the fourth quarter of 2012 due to global economic uncertainties such as the 'fiscal cliff' in the US, the Eurozone debt crisis, and slower growth in China. The company anticipates continued soft customer demand and aggressive inventory management. Consequently, fourth-quarter results are expected to be lower than the third quarter.

Key financial health indicators include total debt, which was $1,479.3 million at the end of the quarter. The net debt to total capitalization was 31.2%, and total debt to total capitalization was 35.9%, indicating a stable leverage profile. Cash and cash equivalents stood at $281.0 million.