10-QPeriod: Q1 FY2019

ATI INC Quarterly Report for Q1 Ended Mar 31, 2019

Filed April 30, 2019For Securities:ATI

Summary

Allegheny Technologies Incorporated (ATI) reported first quarter 2019 results showing a decrease in net income attributable to ATI to $15.0 million ($0.12 per share) from $58.0 million ($0.42 per share) in the prior year period. This decline was primarily driven by operational headwinds in both business segments, High Performance Materials & Components (HPMC) and Flat Rolled Products (FRP). The HPMC segment faced challenges including third-party nickel powder billet supply constraints and the impact of falling cobalt prices, while the FRP segment experienced softness in demand for commodity stainless products and issues with its STAL joint venture. Despite these challenges, total sales increased to $1.0 billion from $979.0 million in Q1 2018, driven by a 7% increase in HPMC sales, particularly in aerospace and defense markets, though FRP sales saw a 4% decline. The company maintained a strong backlog of $2.59 billion, with approximately 80% expected to be fulfilled within the next 12 months. Liquidity remains a focus, with $217 million in cash and cash equivalents at the end of the quarter. The company had no outstanding borrowings under its revolving credit facility but utilized $35.3 million for letters of credit. ATI is managing its financial condition through its ABL Credit Facility and believes it has sufficient resources to meet its ongoing obligations, including significant pension plan funding requirements. The company's strategy continues to focus on technically complex and high-value products, particularly for the aerospace and defense sectors, which represent a substantial portion of its revenue.

Financial Highlights

45 data points
Beta

Revenue

$1.00B

13.0% Gross Margin

Net Income

$15.00M

1.5% Net Margin

EPS (Diluted)

$0.12

Total Assets

$5.49B

Cash & Equivalents

$217.00M

Free Cash Flow

-$130.00M

Financial Statements
Beta
Revenue$1.00B
Cost of Revenue$873.70M
Gross Profit$131.10M
SG&A Expenses$68.00M
Operating Income$63.10M
Net Income$15.00M
EPS (Basic)$0.12
EPS (Diluted)$0.12
Shares Outstanding (Basic)125.80M
Shares Outstanding (Diluted)126.10M

Key Highlights

  • 1First quarter 2019 net income attributable to ATI was $15.0 million ($0.12 EPS), a significant decrease from $58.0 million ($0.42 EPS) in Q1 2018.
  • 2Total sales increased to $1.0 billion in Q1 2019, up from $979.0 million in Q1 2018, driven by the HPMC segment's growth, especially in aerospace and defense.
  • 3Operational headwinds impacted both segments: HPMC faced supply chain issues for nickel powder billet and cobalt price volatility, while FRP dealt with weaker demand for commodity stainless products and issues with its STAL joint venture.
  • 4The company reported a substantial backlog of $2.59 billion at March 31, 2019, with 80% expected within the next 12 months.
  • 5Cash and cash equivalents stood at $217.0 million as of March 31, 2019, showing a decrease from $382.0 million at year-end 2018, largely due to cash used in operating activities.
  • 6The company reaffirmed its commitment to its ABL Credit Facility and believes it has adequate liquidity to meet its obligations, including significant pension funding requirements.
  • 7Sales to the aerospace and defense markets, a key driver for the HPMC segment, increased by 14% to $525.6 million in Q1 2019.

Frequently Asked Questions

The primary reasons for the decrease in net income were operational headwinds experienced by both business segments. In the High Performance Materials & Components (HPMC) segment, these included supply chain disruptions for nickel powder billet, increased operating costs to mitigate these shortages, and the impact of falling cobalt prices. In the Flat Rolled Products (FRP) segment, results were affected by weaker demand for commodity stainless products, cost inefficiencies in finishing operations due to customer destocking, and softness in the STAL joint venture in China.

Total sales increased year-over-year, but segment performance varied. The High Performance Materials & Components (HPMC) segment saw a 7.2% increase in sales to $601.2 million, primarily driven by strong demand in aerospace and defense markets, particularly for titanium and nickel-based alloys. Conversely, the Flat Rolled Products (FRP) segment experienced a 4% decrease in sales to $403.6 million, largely due to lower sales of standard commodity stainless steel products and a decline in the oil & gas market.

As of March 31, 2019, ATI had $217.0 million in cash and cash equivalents. The company has a $500 million Asset Based Lending (ABL) Credit Facility with $400 million available revolving credit, of which $35.3 million was utilized for letters of credit and there were no outstanding borrowings under the revolving portion. Management believes that internally generated funds, current cash on hand, and available borrowings under the ABL facility are adequate to meet liquidity needs, including significant pension plan funding requirements.

ATI utilizes raw material surcharge and index mechanisms on many of its products to offset increased raw material costs. However, competitive factors can limit their effectiveness. Additionally, the company uses financial derivatives, such as futures and swap contracts, to hedge against price fluctuations for key raw materials like nickel and natural gas. They also employ foreign currency forward contracts to manage transactional exposure.