10-QPeriod: Q2 FY2015

ATI INC Quarterly Report for Q2 Ended Jun 30, 2015

Filed July 30, 2015For Securities:ATI

Summary

Allegheny Technologies Incorporated (ATI) reported a net loss attributable to ATI of $16.4 million for the second quarter of 2015, a widening from the $4.0 million loss in the prior year period. Sales also decreased by 1% to $1.02 billion. The company experienced a challenging business environment, particularly within its Flat Rolled Products segment, and a weakening demand in the oil & gas market affecting the High Performance Materials & Components segment. Despite the net loss, the company made progress in strategic initiatives, including the qualification of premium titanium products and expansion of nickel-based superalloy powder capabilities. ATI's balance sheet remained relatively stable, with total assets of $6.47 billion and total liabilities of $3.76 billion. The company also highlighted its focus on cost reductions and operational efficiencies to navigate market volatility.

Financial Highlights

47 data points
Beta

Revenue

$1.02B

7.5% Gross Margin

Net Income

-$16.40M

-1.6% Net Margin

EPS (Diluted)

$-0.15

Total Assets

$6.47B

Cash & Equivalents

$250.90M

Free Cash Flow

$79.50M

Financial Statements
Beta
Revenue$1.02B
Cost of Revenue$945.50M
Gross Profit$77.00M
SG&A Expenses$72.40M
Operating Income$4.60M
Net Income-$16.40M
EPS (Basic)$-0.15
EPS (Diluted)$-0.15
Shares Outstanding (Basic)109.20M
Shares Outstanding (Diluted)107.30M

Key Highlights

  • 1Net loss attributable to ATI widened to $16.4 million ($0.15 per share) in Q2 2015 from $4.0 million ($0.03 per share) in Q2 2014.
  • 2Total sales decreased by 1% to $1.02 billion in Q2 2015 compared to $1.12 billion in Q2 2014.
  • 3The Flat Rolled Products segment experienced a challenging business environment with a 16% decrease in sales.
  • 4The High Performance Materials & Components segment saw a 0.6% decrease in sales, impacted by weakening demand in the oil & gas market.
  • 5The company achieved key milestones, including the qualification of premium titanium products and expansion of powder capabilities.
  • 6Operating cash flow for the first six months of 2015 was positive at $91.5 million, an improvement from a use of $37.5 million in the prior year period.
  • 7ATI's debt-to-capitalization ratio remained stable at 37.0% as of June 30, 2015.

Frequently Asked Questions

The primary drivers were decreased sales in both business segments, particularly the Flat Rolled Products segment, and challenging market conditions, including weakened demand in the oil & gas sector. While operating results improved for the Flat Rolled Products segment compared to the prior year, the company still reported a net loss.

ATI values most of its inventory using the Last-In, First-Out (LIFO) method, which can lead to significant fluctuations in cost of sales during periods of volatile raw material prices. The company also employs inventory valuation reserves. In the first six months of 2015, these inventory adjustments had a mixed impact, with a LIFO valuation reserve benefit partially offset by increases in net realizable value reserves.

ATI expects demand for its mill products, forgings, and investment castings in the High Performance Materials & Components segment to improve due to strong aerospace backlogs. However, demand from the oil & gas market is expected to remain depressed through the end of 2015. In the Flat Rolled Products segment, standard stainless product pricing and demand are expected to remain under pressure due to imports and inventory reductions.

ATI believes its internally generated funds, cash on hand, and available credit facilities are adequate for its liquidity needs. The company has no significant debt maturities until June 2019. However, its credit rating was downgraded in Q1 2015, leading to a 'springing lien' on certain assets under its credit facility. ATI does not expect to meet its required credit facility financial ratios in the next quarter and plans to replace its current revolving credit facility with an asset-based lending facility.