10-QPeriod: Q2 FY2018

ATI INC Quarterly Report for Q2 Ended Jun 30, 2018

Filed August 7, 2018For Securities:ATI

Summary

Allegheny Technologies Incorporated (ATI) reported a significant improvement in financial performance for the first six months of 2018 compared to the same period in 2017. Sales increased by 14% to $1.99 billion, driven by strong growth in both the High Performance Materials & Components (HPMC) and Flat Rolled Products (FRP) segments. Net income attributable to ATI surged to $130.8 million from $27.6 million in the prior year, with diluted earnings per share rising to $0.94 from $0.25. The company benefited from increased demand in key markets, particularly aerospace & defense, which continues to be a primary driver of growth, especially for next-generation jet engine components. The adoption of new accounting standards for revenue recognition (ASC 606) and retirement benefits had an impact on the presentation of financial results but did not alter the overall profitability trends. ATI also recorded a gain on the deconsolidation of the A&T Stainless joint venture. The company raised its full-year revenue and operating profit guidance for both segments, reflecting confidence in continued market demand and operational improvements.

Financial Highlights

46 data points
Beta

Revenue

$1.01B

17.2% Gross Margin

Net Income

$72.80M

7.2% Net Margin

EPS (Diluted)

$0.52

Total Assets

$5.39B

Cash & Equivalents

$122.40M

Free Cash Flow

$82.10M

Financial Statements
Beta
Revenue$1.01B
Cost of Revenue$835.80M
Gross Profit$173.70M
SG&A Expenses$62.70M
Operating Income$111.00M
Net Income$72.80M
EPS (Basic)$0.58
EPS (Diluted)$0.52
Shares Outstanding (Basic)125.70M
Shares Outstanding (Diluted)145.80M

Key Highlights

  • 1Significant year-over-year improvement in sales and net income for the first six months of 2018.
  • 2Aerospace & Defense remains a key growth driver, with strong demand for next-generation jet engine components.
  • 3Both HPMC and FRP segments experienced double-digit sales growth.
  • 4Adoption of ASC 606 revenue recognition standard impacted financial statement presentation, introducing contract assets and liabilities.
  • 5Recorded a $15.9 million pre-tax gain from the deconsolidation of the A&T Stainless joint venture.
  • 6Full-year financial guidance for both business segments has been increased, indicating positive future outlook.
  • 7Acquisition of Addaero Manufacturing expands capabilities in additive manufacturing for aerospace and defense.

Frequently Asked Questions

The primary driver of ATI's revenue growth in the first half of 2018 was the strong performance in its key markets, particularly the aerospace & defense sector. This growth was fueled by increasing demand for next-generation jet engine components and other high-performance materials.

The adoption of ASC 606 for revenue recognition resulted in the recognition of contract assets and liabilities on the balance sheet and changes in how revenue is recognized over time for certain contracts. The adoption of new guidance for defined benefit pension and other postretirement benefit expenses changed the presentation of these costs, moving non-service cost components out of operating income. While these changes affected the presentation, they did not materially impact overall income before taxes or net income.

ATI formed the A&T Stainless joint venture and subsequently sold a 50% interest, leading to its deconsolidation. This transaction resulted in a $15.9 million pre-tax gain for ATI in the first quarter of 2018. While excluded from FRP segment results, the joint venture is expected to produce stainless sheet products for the North American market.

ATI raised its full-year financial guidance for both its High Performance Materials & Components (HPMC) and Flat Rolled Products (FRP) segments. This optimism is supported by continued strong demand in the aerospace market, increasing jet engine build rates, improved asset utilization, and ongoing operational improvements within the FRP segment. The recent acquisition of Addaero Manufacturing also positions ATI for growth in the additive manufacturing space.