10-QPeriod: Q1 FY2018

ATI INC Quarterly Report for Q1 Ended Mar 31, 2018

Filed May 1, 2018For Securities:ATI

Summary

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 million, 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.

Financial Highlights

46 data points
Beta

Revenue

$979.00M

15.2% Gross Margin

Net Income

$58.00M

5.9% Net Margin

EPS (Diluted)

$0.42

Total Assets

$5.35B

Cash & Equivalents

$109.90M

Free Cash Flow

-$47.10M

Financial Statements
Beta
Revenue$979.00M
Cost of Revenue$830.40M
Gross Profit$148.60M
SG&A Expenses$67.10M
Operating Income$81.50M
Net Income$58.00M
EPS (Basic)$0.46
EPS (Diluted)$0.42
Shares Outstanding (Basic)125.70M
Shares Outstanding (Diluted)145.50M

Key Highlights

  • 1Total sales increased by 13.1% to $979.0 million in Q1 2018, compared to $865.9 million in Q1 2017.
  • 2Net 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.
  • 3The 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%.
  • 4The 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%.
  • 5ATI recognized a $15.9 million pre-tax gain on the sale of a 50% noncontrolling interest in its A&T Stainless joint venture.
  • 6The 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.
  • 7Cash 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.

Frequently Asked Questions

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.

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.

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.

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.