10-QPeriod: Q1 FY2013

ATI INC Quarterly Report for Q1 Ended Mar 31, 2013

Filed May 6, 2013For Securities:ATI

Summary

Allegheny Technologies Incorporated (ATI) reported a significant decrease in revenue and net income for the first quarter of 2013 compared to the same period in 2012. Sales fell by 12.8% to $1.18 billion, driven by lower base prices, reduced demand in key markets such as oil and gas, and the electrical energy sector. Net income attributable to ATI was $10.0 million, or $0.09 per diluted share, a sharp decline from $56.2 million, or $0.50 per diluted share, in the prior year. This performance was impacted by challenging market conditions and ongoing investments in capital expenditures, notably the Hot-Rolling and Processing Facility (HRPF). Despite the revenue decline, ATI highlighted efforts to improve financial performance and strengthen its long-term growth position. These include cost reduction initiatives, aggressive pursuit of market opportunities, and efforts to reduce managed working capital. The company maintained its commitment to strategic investments, particularly the HRPF project, which is expected to enhance manufacturing capabilities and cost efficiencies. ATI expressed cautious optimism for gradual improvement in business conditions throughout 2013, with an expectation of moderate recovery in domestic economic growth.

Financial Highlights

48 data points
Beta

Revenue

$1.10B

9.1% Gross Margin

Net Income

$10.00M

0.9% Net Margin

EPS (Diluted)

$0.09

Total Assets

$6.17B

Cash & Equivalents

$138.00M

Free Cash Flow

-$57.40M

Financial Statements
Beta
Revenue$1.10B
Cost of Revenue$998.50M
Gross Profit$100.50M
SG&A Expenses$72.40M
Operating Income$28.10M
Net Income$10.00M
EPS (Basic)$0.09
EPS (Diluted)$0.09
Shares Outstanding (Basic)107.61M
Shares Outstanding (Diluted)107.10M

Key Highlights

  • 1Revenue decreased by 12.8% to $1.18 billion in Q1 2013 compared to $1.35 billion in Q1 2012.
  • 2Net income attributable to ATI significantly declined to $10.0 million ($0.09/share) from $56.2 million ($0.50/share) year-over-year.
  • 3Operating profit for the High Performance Metals segment decreased to $75.3 million (14.5% of sales) from $104.1 million (17.9% of sales).
  • 4The Flat-Rolled Products segment experienced a substantial drop in operating profit to $2.4 million (0.4% of sales) from $46.8 million (7.4% of sales).
  • 5Cash used in operating activities was $57.4 million for Q1 2013, compared to cash provided by operating activities of $18.2 million in Q1 2012.
  • 6Capital expenditures were $86.9 million in Q1 2013, largely for the HRPF project, with full-year 2013 capital expenditures expected around $550 million.
  • 7The company's net debt to total capitalization increased to 35.0% at March 31, 2013, from 32.2% at December 31, 2012.

Frequently Asked Questions

Sales decreased due to lower base prices for many products, falling raw material indices/surcharges, and decreased demand from key markets like oil and gas, jet engine aftermarket, electrical energy, and construction/mining. The significant drop in net income was a direct consequence of these lower sales, coupled with ongoing investments and certain cost pressures.

The company is focusing on controlling managed working capital, which includes accounts receivable, inventory, and accounts payable. Managed working capital as a percentage of annualized sales decreased to 37.8% at the end of Q1 2013. Capital expenditures were $86.9 million in Q1 2013, primarily for the HRPF project, with total expected expenditures for 2013 around $550 million, representing peak spending.

Total outstanding debt was $1.479 billion at March 31, 2013. The net debt to total capitalization ratio increased to 35.0%. The company believes internally generated funds, current cash, and available borrowings under existing credit lines are adequate to meet liquidity needs. The company was in compliance with its debt covenants at the end of the quarter.

ATI expects challenging conditions to continue impacting many end markets in the second quarter due to global economic uncertainties and short lead times. However, they remain cautiously optimistic for gradual improvement throughout 2013, with an expectation of some demand improvement from key global markets and moderate recovery in domestic economic growth.