10-QPeriod: Q3 FY2015

ATI INC Quarterly Report for Q3 Ended Sep 30, 2015

Filed October 29, 2015For Securities:ATI

Summary

Allegheny Technologies Incorporated (ATI) reported a net loss attributable to ATI of $144.6 million for the third quarter ended September 30, 2015, a significant decline from the near breakeven result of $0.7 million in the prior year period. This downturn was driven by a substantial decrease in sales, particularly in the Flat Rolled Products segment, which saw a 36% decline year-over-year. The company also faced challenging market conditions, including declining raw material prices, intense global competition, and disruptions from a labor lockout at several facilities. Despite the overall loss, the High Performance Materials & Components segment showed resilience with a slight sales increase year-over-year, driven by demand in the aerospace market. However, the Flat Rolled Products segment incurred a significant operating loss due to reduced demand, lower selling prices, and operational disruptions. The company is implementing cost reduction measures, including a reduction in force, and is focused on improving its cost structure and product mix to navigate the current challenging environment. Investors should monitor the recovery of the Flat Rolled Products segment and the continued strength of the High Performance Materials & Components segment amidst ongoing market volatility.

Financial Highlights

48 data points
Beta

Revenue

$832.70M

-3.4% Gross Margin

Net Income

-$144.60M

-17.4% Net Margin

EPS (Diluted)

$-1.35

Total Assets

$6.16B

Cash & Equivalents

$197.50M

Free Cash Flow

$17.40M

Financial Statements
Beta
Revenue$832.70M
Cost of Revenue$861.40M
Gross Profit-$28.70M
SG&A Expenses$62.50M
Operating Income-$91.20M
Net Income-$144.60M
EPS (Basic)$-1.35
EPS (Diluted)$-1.35
Shares Outstanding (Basic)109.20M
Shares Outstanding (Diluted)107.30M

Key Highlights

  • 1Reported a net loss attributable to ATI of $144.6 million for Q3 2015, a significant deterioration from the $0.7 million net loss in Q3 2014.
  • 2Total sales decreased by 22% year-over-year to $832.7 million in Q3 2015, largely driven by a 36% decline in the Flat Rolled Products segment.
  • 3The High Performance Materials & Components segment sales increased slightly by 1% year-over-year to $474.7 million, supported by aerospace demand, but operating profit margin compressed.
  • 4The Flat Rolled Products segment experienced a significant operating loss of $91.8 million in Q3 2015, compared to a modest profit in the prior year, impacted by lower demand, prices, and a labor lockout.
  • 5The company recorded a $63.9 million income tax valuation allowance due to a three-year cumulative loss from U.S. operations, significantly impacting profitability.
  • 6ATI is undertaking cost reduction initiatives, including a workforce reduction of approximately $23 million in annualized costs starting in 2016.
  • 7The company entered into a new $400 million Asset Based Lending (ABL) Revolving Credit Facility, replacing its prior facility, providing financial flexibility.

Frequently Asked Questions

The primary drivers of the net loss were a substantial decline in sales, particularly in the Flat Rolled Products segment, impacted by challenging market conditions such as falling raw material prices and increased competition. Additionally, a labor lockout at several facilities disrupted operations, and a significant $63.9 million income tax valuation allowance due to cumulative U.S. operating losses negatively affected the bottom line.

The High Performance Materials & Components segment showed some resilience, with a slight increase in sales driven by aerospace demand, although its operating profit margin decreased. In contrast, the Flat Rolled Products segment saw a significant drop in sales and incurred a substantial operating loss due to weak demand, lower selling prices, and operational disruptions from a labor lockout.

ATI is implementing several measures, including workforce reductions expected to yield approximately $23 million in annualized cost savings starting in 2016. They are also focused on optimizing the cost structure and product mix within their Flat Rolled Products segment and ensuring operational improvements at their High Performance Materials & Components facilities.

Total outstanding debt remained relatively stable, with a slight decrease. The company refinanced its revolving credit facility, entering into a new $400 million Asset Based Lending (ABL) Revolving Credit Facility. While no borrowings were outstanding under the new facility at the time of the report, it provides financial flexibility. The company also experienced credit rating downgrades, which led to increased interest expense on specific notes.