01—Abstract
Summary
Summary of the 10-Q filed May 1, 2018. Cited figures are marked; the original filing is the authoritative source.
Allegheny Technologies Incorporated (ATI) reported a strong first quarter in 2018, with significant revenue growth and improved profitability, driven primarily by its High Performance Materials & Components (HPMC) segment.
Net sales increased to $979.0 milliona, up from $865.9 million in the prior year's quarter, reflecting robust demand in key markets, particularly aerospace and defense. The company's strategic focus on next-generation aerospace programs is paying off, evidenced by a substantial increase in sales within this sector. The company also benefited from a $15.9 million pre-tax gain related to the deconsolidation of its A&T Stainless joint venture.
Despite some headwinds, such as increased corporate expenses and the impact of new accounting standards for retirement benefit costs, ATI demonstrated solid operational execution. Management expressed confidence in continued year-over-year revenue growth and margin expansion, particularly within the HPMC segment, supported by ongoing aerospace market demand.
02—Key points
Key Highlights
- Total sales increased by 13.1% to $979.0 million in Q1 2018, compared to $865.9 million in Q1 2017.
- Net income attributable to ATI more than tripled, reaching $58.0 million ($0.42 per share) in Q1 2018, up from $17.5 million ($0.16 per share) in Q1 2017.
- The High Performance Materials & Components (HPMC) segment saw a 9.9% sales increase to $560.7 million, with operating profit margin improving significantly to 15.2% from 10.0%.
- The Flat Rolled Products (FRP) segment's sales increased by 17.7% to $418.3 million, although its operating profit margin decreased to 2.6% from 5.3%.
- ATI recognized a $15.9 million pre-tax gain on the sale of a 50% noncontrolling interest in its A&T Stainless joint venture.
- The company's backlog of confirmed orders stood at $2.05 billion as of March 31, 2018, an increase from $1.84 billion at March 31, 2017.
- Cash used in operating activities was $47.1 million for Q1 2018, an improvement from $110.2 million in Q1 2017, despite an increase in working capital.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q1 FY2018, ATI Inc kept $0.06.
- Revenue$979.0M100.0%
- Cost of revenue−$830.4M84.8%
- Gross profit$148.6M15.2%
- Operating costs−$67.1M6.9%
- Operating income$81.5M8.3%
- Interest, other & tax−$23.5M2.4%
- Net income$58.0M5.9%
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2018filed May 1, 2018Financial Statements
Q1 FY2018 against Q1 FY2017
| Line item | Q1 FY2018Q1 FY2017 | Change |
|---|---|---|
| Revenue | $979.00M$865.90M | +13.1% |
| Cost of Revenue | $830.40M$741.10M | +12.0% |
| Gross Profit | $148.60M$124.80M | +19.1% |
| SG&A Expenses | $67.10M$57.90M | +15.9% |
| Operating Income | $81.50M$66.90M | +21.8% |
| Net Income | $58.00M$17.50M | +231.4% |
| EPS (Basic) | $0.46$0.16 | +187.5% |
| EPS (Diluted) | $0.42$0.16 | +162.5% |
| Shares Outstanding (Basic) | 125.70M108.80M | +15.5% |
| Shares Outstanding (Diluted) | 145.50M128.20M | +13.5% |
05—Questions
Frequently Asked Questions
What were the primary drivers of revenue growth in the first quarter of 2018?
Revenue growth was primarily driven by strong performance in the High Performance Materials & Components (HPMC) segment, which benefited from increased demand in the aerospace and defense market, particularly for next-generation jet engine components. The Flat Rolled Products (FRP) segment also contributed with higher sales volumes of high-value products, mainly nickel-based and specialty alloys for oil & gas projects.
How did the adoption of new accounting standards impact the financial statements?
The adoption of ASC 606, Revenue from Contracts with Customers, resulted in a $15.5 million increase to retained earnings at the beginning of fiscal year 2018 and a shift in revenue recognition for certain long-term contracts to 'over time.' Additionally, new guidance on defined benefit pension and postretirement benefit expenses changed the presentation of these costs, moving non-service cost components outside of operating income. This change impacted prior period reporting for comparability but did not affect overall pre-tax income.
What is the company's outlook for the HPMC and FRP segments in 2018?
ATI expects continued year-over-year revenue growth and operating margin improvement in its HPMC segment, driven by sustained aerospace market demand and better asset utilization. For the FRP segment, the company sees strong end-market demand and benefits from product mix and operational improvements, though it is monitoring the impact of Section 232 tariffs on its A&T Stainless joint venture.
How is the company managing its debt and liquidity?
ATI has a $500 million Asset Based Lending (ABL) Credit Facility. As of March 31, 2018, the company had $110 million in cash and cash equivalents and approximately $305 million in available liquidity under the ABL facility. The company believes these resources are adequate to meet its liquidity needs, including projected pension plan contributions.
06—Continue