10-QPeriod: Q2 FY2013

ATI INC Quarterly Report for Q2 Ended Jun 30, 2013

Filed August 5, 2013For Securities:ATI

Summary

Allegheny Technologies Incorporated (ATI) reported a significant decline in financial performance for the second quarter and first half of 2013 compared to the same periods in 2012. Sales decreased across all segments, leading to a substantial drop in net income and earnings per share. The company experienced lower shipments and decreased selling prices, particularly in its Flat-Rolled Products and Engineered Products segments, though High Performance Metals also saw a decline. Despite the revenue challenges, ATI made progress on its strategic initiatives, including cost reduction efforts and the ongoing construction of its advanced Hot-Rolling and Processing Facility (HRPF). The company also amended its revolving credit facility, extending its maturity and modifying covenants, and issued new senior notes to enhance financial flexibility. While current liquidity is deemed adequate, management anticipates continued challenges in the near term due to prevailing economic uncertainties.

Financial Highlights

48 data points
Beta

Revenue

$1.06B

8.3% Gross Margin

Net Income

$4.40M

0.4% Net Margin

EPS (Diluted)

$0.04

Total Assets

$6.12B

Cash & Equivalents

$74.10M

Free Cash Flow

$115.40M

Financial Statements
Beta
Revenue$1.06B
Cost of Revenue$969.10M
Gross Profit$87.70M
SG&A Expenses$67.10M
Operating Income$20.60M
Net Income$4.40M
EPS (Basic)$0.04
EPS (Diluted)$0.04
Shares Outstanding (Basic)107.98M
Shares Outstanding (Diluted)107.20M

Key Highlights

  • 1Net income attributable to ATI for the three months ended June 30, 2013, was $4.4 million, a sharp decrease from $56.4 million in the prior year's quarter.
  • 2Diluted earnings per share for the second quarter of 2013 were $0.04, down from $0.50 in the second quarter of 2012.
  • 3Total sales for the second quarter of 2013 decreased by 16% to $1.14 billion compared to $1.36 billion in the prior year.
  • 4Segment operating profit saw a significant decline, dropping to $71.7 million (6.3% of sales) in Q2 2013 from $159.9 million (11.8% of sales) in Q2 2012.
  • 5The company invested $223.7 million in capital expenditures during the first six months of 2013, with a significant portion allocated to the HRPF project.
  • 6ATI amended its $400 million revolving credit facility, extending its maturity to May 31, 2018, and modified its leverage ratio covenants.
  • 7In July 2013, the company issued $500 million in 5.875% Senior Notes due 2023 to fund general corporate purposes.

Frequently Asked Questions

The decrease in sales and profitability was primarily driven by lower shipment volumes across most product lines, coupled with lower base selling prices for many products. Additionally, higher raw material costs for products with longer manufacturing cycles that were not aligned with falling raw material indices negatively impacted results, particularly in the Flat-Rolled Products and High Performance Metals segments.

ATI is managing its financial flexibility by focusing on cost reduction efforts, which yielded over $79 million in gross cost reductions in the first six months of 2013. They also amended their $400 million credit facility to extend its maturity and modified leverage covenants. Furthermore, they issued $500 million in new senior notes in July 2013 for general corporate purposes. Management believes these measures, along with internally generated funds and existing credit facilities, are adequate to meet foreseeable liquidity needs.

The construction of the advanced specialty metals Hot-Rolling and Processing Facility (HRPF) is progressing on schedule and on budget. Completion of construction with assets ready for service is expected by the end of 2013, with formal commissioning in the first half of 2014. This project represents a significant capital investment, with approximately 90% of the company's expected $575 million capital expenditures for 2013 allocated to it.

Management noted that they were not seeing significant changes in market conditions and anticipated the third quarter could be more challenging, being traditionally softer. They expressed encouragement from early signs of stabilization in nickel and titanium scrap prices, which could lead to demand and pricing improvements in the fourth quarter. However, they cautioned that customer caution and volatile raw material prices remain near-term concerns.