- Sales were $866 million, up 9%
compared to Q4 2016
- High Performance Materials &
Components sales increased 7%, to $510 million
- Flat Rolled Products sales increased
11%, to $356 million
- Business segment operating profit
was $70 million, or 8% of sales
- HPMC segment operating profit was
$51 million, or 10% of sales
- Includes $2 million of start-up
costs for Bakers Powder Operations
- FRP segment operating profit was $19
million, or 5% of sales
- FRP results benefitted from $6
million of surcharge method changes
- Net income attributable to ATI was
$17 million, or $0.16 per share
- $135 million cash contribution to
ATI Pension Plan
Allegheny Technologies Incorporated (NYSE: ATI) reported first
quarter 2017 sales of $865.9 million and net income attributable to
ATI of $17.5 million, or $0.16 per share. Business segment
operating profit improved to $69.9 million, or 8.1% of sales.
“First quarter 2017 sales grew by 14% compared to the same 2016
period. Net income was $17 million, or $0.16 per share, compared to
a significant loss in the first quarter 2016. This was a good start
toward achieving our goal of sustainable long-term profitable
growth,” said Rich Harshman, Chairman, President and Chief
Executive Officer.
“Our first quarter 2017 results demonstrate that we are
beginning to realize the benefits of our growing position on
next-generation commercial aerospace programs and the significant
actions taken to improve our operating efficiencies and cost
structure.
“Aerospace and defense sales increased 6%, to $417 million,
compared to the fourth quarter of 2016. In the first quarter 2017,
our High Performance Materials & Components (HPMC) segment saw
continued growth in product sales for next-generation jet engines,
which represented more than one-third of HPMC commercial jet engine
sales. Our Flat Rolled Products (FRP) segment results reflect
improved demand and product mix, benefits from cost reduction and
restructuring actions, as well as a one-time benefit from a change
in how the ferrochrome surcharge is calculated.”
- ATI’s sales to the key global markets
of aerospace and defense, oil & gas, electrical energy,
automotive and medical represented 80% of ATI first quarter 2017
sales:
- Sales to the aerospace and defense
markets were $417 million and represented 48% of ATI sales: 26% jet
engine, 15% airframe, 7% government aero/defense. ATI’s sales to
the commercial aerospace market increased 8% compared to the fourth
quarter 2016.
- Sales to the oil & gas market were
$93 million and represented 11% of ATI sales.
- Sales to the automotive market were $76
million and represented 9% of ATI sales.
- Sales to the electrical energy market
were $52 million and represented 6% of ATI sales.
- Sales to the medical market were $50
million and represented 6% of ATI sales.
- Direct international sales were $341
million and represented 39% of ATI’s sales.
“HPMC segment sales increased 7% to $510 million, compared to
the fourth quarter 2016. Segment operating profit was approximately
$51 million, or 10% of sales, including $2 million of powder
facility start-up costs. Results reflect jet engine supply chain
balancing that resulted in a higher mix of legacy mill products in
the first quarter compared to the fourth quarter 2016. Our
next-generation product ramp is on track, and we expect improving
segment margins as the year progresses,” Harshman continued. “Sales
to the aerospace and defense market increased 6% and represented
75% of segment sales: 43% jet engine, 20% airframe and 12%
government aero/defense. First quarter 2017 results also included
higher demand from the oil & gas, medical, transportation and
other industrial markets. Bakers Powder Operations, our new
nickel-based powder alloys facility in North Carolina, began
operations in the first quarter.
“Our FRP segment achieved improved first quarter 2017 results
with $355 million in sales, 11% higher than the fourth quarter
2016. Sales to the automotive market were 20% higher, and sales to
the oil & gas market were 9% higher due to project-based demand
for chemical and hydrocarbon processing. FRP segment operating
profit improved to $19 million, or 5.3% of segment sales, on higher
selling prices, including recovery of raw material costs and a $6
million benefit of a change in the ferrochrome surcharge
calculation method. FRP segment results are beginning to show the
benefits of our significant efforts on cost reductions and
operating improvements, including benefits from the HRPF.
“At March 31, 2017, cash on hand was $160 million and available
additional liquidity under our domestic Asset-Based Lending (ABL)
credit facility was approximately $230 million, with $60 million
borrowed under the revolving credit portion of the ABL. Managed
working capital increased $11 million in the first quarter 2017,
but decreased as a percentage of annualized sales, due to increased
business activity. We continue to estimate that 2017 capital
expenditures will be $125 million, with $25 million expended in the
first quarter 2017. We also made a $135 million cash contribution
to the ATI Pension Plan in March 2017, which completes our funding
requirements for 2017.”
Strategy and Outlook
“The HPMC segment remains on track for 2017 sales growth of
approximately 10%, and low-double-digit operating profit as a
percentage of sales,” Harshman said. “We expect our cost structure
to continue to improve throughout the year as a result of our 2016
titanium operations restructuring actions, including achieving a
better balance of titanium raw material cost inputs following last
year’s idling of our Rowley titanium sponge production facility.
Additionally, our isothermal and hot-die forge press utilization
continues to improve to meet aerospace demand growth, including new
market share gains.
“We expect to sustain the FRP segment’s return to profitability
at a low-single digit level as a percentage of segment sales, after
adjusting for positive impact of the ferrochrome surcharge
benchmark change on first quarter 2017 results. Order volumes
remain at reasonably good levels as we move into the 2017 second
quarter. We remain cautious because prices of raw materials have
eroded since the first quarter, and our visibility in the second
half of 2017 remains limited. While improved, conditions remain
challenging in the oil & gas market.
“Cash generation from operations remains a key focus. We
generated positive cash flow from operations in the first quarter
2017, excluding the ATI Pension Plan contribution, even with a
modest growth in managed working capital. We do not expect to pay
any U.S. federal income taxes in 2017 due to net operating loss
carryforwards, and we intend to carefully balance our working
capital and other cash needs with the pace of our capital
expenditure requirements and financing obligations. We have support
from our agent bank to extend the duration of our $100 million ABL
term loan from the current due date in November 2017 to September
2020, subject to customary due diligence and other closing
activities. We expect to finalize this term loan extension in the
second quarter of 2017. Beyond 2017, we continue to expect capital
expenditures to average no more than $100 million annually for the
next several years.”
First Quarter 2017 Financial Results
- Sales for the first quarter 2017
were $865.9 million, a 9% increase compared to the fourth quarter
2016. HPMC sales reflect stronger demand for nickel-based and
specialty alloys mill products, and forged components. FRP sales
increased primarily due to improved transaction pricing for both
high-value and standard stainless products.
- Net income attributable to ATI
for the first quarter 2017 was $17.5 million, or $0.16 per share,
compared to $9.9 million, or $0.09 per share in the fourth quarter
2016. Results in both periods include impacts from income taxes
which differ from a standard 35% tax rate, primarily related to
income tax valuation allowance changes.
- Cash on hand at March 31, 2017
was $159.8 million, a $69.8 million decrease from year-end 2016.
Cash used in operations was $110.2 million, including a $135.0
million contribution to the ATI Pension Plan, and a use of $11.2
million due to higher managed working capital balances. Cash used
in investing activities was $22.2 million, with $24.8 million for
capital expenditures partially offset by cash proceeds from sales
of assets. Cash provided by financing activities was $62.6 million,
primarily from $60.0 million of borrowings on the Asset-Based
Lending revolving credit facility.
High Performance Materials & Components
SegmentMarket Conditions
- Sales to the commercial aerospace
market in the first quarter 2017 remained solid, and increased
$22.4 million, or 7%, compared to the fourth quarter 2016.
Government aerospace and defense sales were 2% lower. Sales to the
oil & gas market increased almost 60% to $16.5 million, off low
levels. Sales of our nickel-based and specialty alloys were 9%
higher, sales of titanium and titanium alloys were 7% higher, and
sales of precision forgings and castings increased 5%, compared to
the fourth quarter 2016. Sales of zirconium and related alloys were
6% lower primarily due to lower demand from the commercial nuclear
market. Direct international sales represented over 46% of total
segment sales for first quarter 2017.
First quarter 2017 compared to first quarter 2016
- Sales were $510.4 million, a 4%
increase compared to the first quarter 2016, primarily as a result
of higher sales of nickel-based and specialty stainless alloys, and
forged and cast components. Sales to the commercial aerospace
market, which represented 63% of first quarter 2017 sales, were 8%
higher than the first quarter 2016, with strong growth in both the
commercial jet engine and airframe markets. Sales to the oil &
gas market improved modestly, from low demand levels. Sales to the
electrical energy market decreased 14%.
- Segment operating profit was $50.9
million, or 10.0% of sales, compared to $29.1 million, or 5.9% of
sales for the first quarter 2016. The improvement in HPMC segment
operating profit reflects higher productivity from increasing
aerospace and defense sales and the benefits of the 2016 titanium
operations restructuring activities, including the Rowley, UT
titanium sponge operations idling.
Flat Rolled Products SegmentMarket Conditions
- Market conditions improved in the first
quarter 2017 for both high-value products and commodity standard
stainless products. Sales to the automotive, consumer durables, and
construction and mining markets all posted double-digit percentage
increases compared to the fourth quarter 2016, and sales to the oil
& gas market increased 9% sequentially. Sales of high-value
products increased 9% and sales of standard grade stainless sheet
and plate products were 16% higher, both compared to the fourth
quarter 2016. Flat Rolled Products segment shipment information is
presented in the attached Selected Financial Data – Mill Products
table. Direct international sales represented 30% of total segment
sales for the first quarter 2017.
First quarter 2017 compared to first quarter 2016
- Sales were $355.5 million, a 34%
increase compared to the prior year period, due to higher shipment
volume and selling prices for both standard stainless products and
high-value products, as well as improved operating and delivery
performance compared to the prior year’s results, which included
effects from the work stoppage and additional disruption to
operations during the return of USW-represented employees in March
2016.
- Segment operating profit was $19.0
million, or 5.3% of sales, compared to a first quarter 2016 segment
operating loss of $109.6 million. Segment operating results in the
first quarter 2017, compared to the first quarter 2016, reflect
improved profitability due to higher operating levels, improved
recovery on raw material costs, a $6 million benefit from the
change to the ferrochrome surcharge calculation, and the benefits
of cost reductions and restructuring actions. Segment operating
results in 2016 were primarily driven by lower shipment volumes and
selling prices, and also included $21.1 million of costs associated
with the work stoppage and return-to-work of represented
employees.
Closed Operations and Other Expenses
- Closed operations and other expenses in
the first quarter 2017 benefitted from certain non-routine items
involving property tax adjustments, changes to facility closure
reserves, and non-operating royalty income, which reduced net costs
by approximately $4 million. Closed operations costs in fiscal year
2017 are expected to be higher than in fiscal year 2016 due to the
additions of the Rowley, UT, Midland, PA and Bagdad, PA facilities
as a result of prior year closure actions. First quarter 2017
results also reflect lower environmental and retirement benefit
expenses for closed operations.
Income Taxes
- ATI continues to maintain income tax
valuation allowances on its U.S. Federal and state deferred tax
assets. First quarter 2017 results reflect a projected annual
effective tax rate of approximately 15%, primarily relating to
foreign operations, and $1.3 million of discrete tax benefits
recognized in the quarter.
Allegheny Technologies will conduct a conference call with
investors and analysts on Tuesday, April 25, 2017, at 8:30 a.m. ET
to discuss the financial results. The conference call will be
broadcast, and accompanying presentation slides will be available,
at ATImetals.com. To access the broadcast, click on “Conference
Call”. Replay of the conference call will be available on the
Allegheny Technologies website.
This news release contains “forward-looking statements” within
the meaning of the Private Securities Litigation Reform Act of
1995. Certain statements in this news release relate to future
events and expectations and, as such, constitute forward-looking
statements. Forward-looking statements include those containing
such words as “anticipates,” “believes,” “estimates,” “expects,”
“would,” “should,” “will,” “will likely result,” “forecast,”
“outlook,” “projects,” and similar expressions. Forward-looking
statements are based on management’s current expectations and
include known and unknown risks, uncertainties and other factors,
many of which we are unable to predict or control, that may cause
our actual results, performance or achievements to differ
materially from those expressed or implied in the forward-looking
statements. Important factors that could cause actual results to
differ materially from those in the forward-looking statements
include: (a) material adverse changes in economic or industry
conditions generally, including global supply and demand conditions
and prices for our specialty metals; (b) material adverse changes
in the markets we serve, including the aerospace and defense,
electrical energy, oil and gas/chemical and hydrocarbon processing
industry, medical, automotive, construction and mining, and other
markets; (c) our inability to achieve the level of cost savings,
productivity improvements, synergies, growth or other benefits
anticipated by management from strategic investments and the
integration of acquired businesses, whether due to significant
increases in energy, raw materials or employee benefits costs,
project cost overruns or unanticipated costs and expenses, or other
factors; (d) continued decline in, or volatility of, prices,
and availability of supply, of the raw materials that are critical
to the manufacture of our products; (e) declines in the value of
our defined benefit pension plan assets or unfavorable changes in
laws or regulations that govern pension plan funding;
(f) significant legal proceedings or investigations adverse to
us; (g) labor disputes or work stoppages; and (h) other risk
factors summarized in our Annual Report on Form 10-K for the year
ended December 31, 2016, and in other reports filed with the
Securities and Exchange Commission. We assume no duty to update our
forward-looking statements.
Creating Value Thru Relentless Innovation™
ATI is a global manufacturer of technically advanced specialty
materials and complex components. With revenue of $3.2 billion for
the twelve month period ending March 31, 2017, our largest market
is aerospace & defense, particularly jet engines. We also have
a strong presence in the oil & gas, electrical energy, medical,
automotive, and other industrial markets. ATI is a market leader in
manufacturing differentiated specialty alloys and forgings that
require our unique manufacturing and precision machining
capabilities and our innovative new product development competence.
ATI produces nickel-based alloys and superalloys, titanium alloys,
specialty alloys, stainless steels, and zirconium and other related
alloys in many mill product forms. We also are a leader in
producing nickel-based alloy and titanium-based alloy powders for
use in next-generation jet engine forgings and 3D-printed products.
ATIMetals.com
Allegheny Technologies Incorporated and
Subsidiaries
Consolidated Statements of Operations (Unaudited, dollars in
millions, except per share amounts)
Three Months
Ended March 31 December 31 March 31
2017 2016 2016 Sales $
865.9 $ 796.1 $ 757.5
Cost of sales 753.1 698.8 790.7
Gross profit (loss) 112.8 97.3 (33.2 ) Selling and
administrative expenses 59.5 65.3 62.6 Restructuring charges
- 28.6 9.0 Operating income
(loss) 53.3 3.4 (104.8 ) Interest expense, net (33.5 ) (32.8 )
(28.3 ) Other income, net 3.3 0.6
0.8 Income (loss) before income taxes 23.1 (28.8 )
(132.3 ) Income tax provision (benefit) 2.0
(42.5 ) (34.2 )
Net income (loss) $
21.1 $ 13.7 $ (98.1 )
Less: Net income attributable to noncontrolling interests
3.6 3.8 3.1
Net income (loss)
attributable to ATI $ 17.5 $
9.9 $ (101.2 ) Per
common share: Basic net income (loss) attributable to
ATI $ 0.16 $ 0.09
$ (0.94 ) Diluted net income (loss)
attributable to ATI $ 0.16 $
0.09 $ (0.94 )
Weighted average common shares outstanding
-- basic (millions)
107.5 107.3 107.3
Weighted average common shares outstanding
-- diluted (millions)
128.2 108.7 107.3
Actual common shares outstanding -- end of
period (millions)
108.8 108.9 108.9
Allegheny Technologies Incorporated and Subsidiaries
Sales and Operating Profit by Business Segment (Unaudited,
dollars in millions)
Three Months Ended March
31 December 31 March 31 2017 2016
2016 Sales: High Performance Materials & Components $
510.4 $ 477.2 $ 493.0 Flat Rolled Products 355.5
318.9 264.5
Total External
Sales $ 865.9 $ 796.1
$ 757.5 Operating Profit (Loss):
High Performance Materials & Components $ 50.9 $ 53.8 $ 29.1 %
of Sales 10.0 % 11.3 % 5.9 % Flat Rolled Products 19.0 (0.8
) (109.6 ) % of Sales 5.3 % -0.3 % -41.4 %
Operating Profit (Loss) 69.9 53.0
(80.5 ) % of Sales 8.1 % 6.7 % -10.6 %
LIFO and net realizable value reserves - 0.4 - Corporate
expenses (10.3 ) (10.8 ) (11.0 ) Closed operations and other
expenses (3.0 ) (10.0 ) (3.5 ) Restructuring and other
charges - (28.6 ) (9.0 ) Interest expense, net (33.5
) (32.8 ) (28.3 )
Income (loss)
before income taxes $ 23.1 $
(28.8 ) $ (132.3 )
Allegheny Technologies Incorporated and
Subsidiaries Condensed Consolidated Balance Sheets
(Unaudited, dollars in millions)
March 31 December
31 2017 2016 ASSETS Current
Assets: Cash and cash equivalents $ 159.8 $ 229.6
Accounts receivable, net of allowances for
doubtful accounts
504.6 452.1 Inventories, net 1,051.9 1,037.0 Prepaid expenses and
other current assets 46.3 47.8
Total Current
Assets 1,762.6 1,766.5 Property, plant and
equipment, net 2,495.8 2,498.9 Goodwill 642.6 641.9 Other assets
253.4 262.7
Total Assets $
5,154.4 $ 5,170.0 LIABILITIES AND
EQUITY Current Liabilities: Accounts payable $
346.4 $ 294.3 Accrued liabilities 276.4 309.3
Short term debt and current portion of
long-term debt
172.8 105.1
Total Current Liabilities
795.6 708.7 Long-term debt 1,772.5 1,771.9
Accrued postretirement benefits 313.2 317.7 Pension liabilities
687.8 827.9 Deferred income taxes 13.0 15.6 Other long-term
liabilities 82.9 83.4
Total Liabilities
3,665.0 3,725.2 Total ATI stockholders'
equity 1,394.2 1,355.2 Noncontrolling interests 95.2
89.6
Total Equity 1,489.4
1,444.8 Total Liabilities and Equity $
5,154.4 $ 5,170.0
Allegheny Technologies Incorporated and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited,
dollars in millions)
Three Months Ended March
31 2017 2016 Operating Activities:
Net income (loss) $ 21.1 $ (98.1 ) Depreciation and
amortization 40.3 44.1 Deferred taxes 1.2 (38.7 ) Change in managed
working capital (11.2 ) 22.2 Change in retirement benefits (a)
(128.1 ) 7.4 Accrued liabilities and other (33.5 )
1.6
Cash used in operating activities
(110.2 ) (61.5 ) Investing
Activities: Purchases of property, plant and equipment (24.8 )
(69.5 ) Asset disposals and other 2.6 0.8
Cash used in investing activities (22.2
) (68.7 ) Financing Activities:
Payments on long-term debt and capital leases (0.3 ) (0.2 ) Net
borrowings under credit facilities 67.7 152.2 Dividends paid to
shareholders - (8.6 ) Acquisition of noncontrolling interests -
(6.1 ) Taxes on share-based compensation and other (4.8 )
-
Cash provided by financing activities
62.6 137.3 Increase
(decrease) in cash and cash equivalents (69.8 )
7.1 Cash and cash equivalents at beginning of period
229.6 149.8
Cash and cash equivalents at
end of period $ 159.8 $
156.9 (a) Includes $(135) million contribution
to the U.S. defined benefit pension plan in 2017.
Allegheny Technologies Incorporated and
Subsidiaries Selected Financial Data (Unaudited)
Three Months Ended March 31 December 31
March 31 2017 2016 2016 Percentage
of Total ATI Sales High-Value Products Nickel-based
alloys and specialty alloys 26 % 26 % 29 %
Titanium and titanium-based alloys
18 % 18 % 21 % Precision forgings, castings and components 18 % 18
% 18 % Precision and engineered strip 14 % 14 % 12 % Zirconium and
related alloys 6 % 8 % 8 % Total High-Value
Products, excluding GOES 82 % 84 % 88 % Grain-oriented electrical
steel (GOES) 0 % 0 % 2 % Total High-Value
Products, including GOES 82 % 84 % 90 %
Standard Products Stainless steel sheet 10 % 10 % 4 %
Specialty stainless sheet 5 % 4 % 3 % Stainless steel plate and
other 3 % 2 % 3 % Total Standard Products
18 % 16 % 10 %
Grand Total 100 %
100 % 100 %
Three Months Ended
March 31 December 31 March 31 Shipment
Volume: 2017 2016 2016 Flat Rolled
Products (000's lbs.) High value* 75,333 75,708 66,643 Standard
114,985 112,164 67,036
Flat Rolled Products total 190,318 187,872 133,679
Average Selling Prices: Flat Rolled Products (per
lb.) High value* $ 2.77 $ 2.54 $ 2.67 Standard $ 1.26 $ 1.11 $ 0.98
Flat Rolled Products combined average $ 1.86 $ 1.68 $ 1.82 *
High value products exclude GOES for the quarter ended March 31,
2016.
Allegheny
Technologies Incorporated and Subsidiaries Computation of
Basic and Diluted Earnings Per Share Attributable to ATI
(Unaudited, in millions, except per share amounts)
Three
Months Ended March 31 December 31 March 31
2017 2016 2016 Numerator for Basic net
income (loss) per common share - Net income (loss) attributable to
ATI $ 17.5 $ 9.9 $ (101.2 ) Effect of dilutive securities: 4.75%
Convertible Senior Notes due 2022 3.0 - -
Numerator for Dilutive net income (loss) per common share -
Net income (loss) attributable to ATI after assumed conversions $
20.5 $ 9.9 $ (101.2 ) Denominator for Basic net income
(loss) per common share - Weighted average shares outstanding 107.5
107.3 107.3 Effect of dilutive securities: Share-based compensation
0.8 1.4 - 4.75% Convertible Senior Notes due 2022 19.9
- - Denominator for Diluted net income (loss)
per common share -
Adjusted weighted average shares assuming
conversions
128.2 108.7 107.3 Basic net
income (loss) attributable to ATI per common share
$
0.16 $ 0.09 $ (0.94 )
Diluted net income (loss) attributable to ATI per common
share
$ 0.16 $ 0.09 $
(0.94 ) Allegheny
Technologies Incorporated and Subsidiaries Other Financial
Information Managed Working Capital (Unaudited, dollars
in millions)
March 31 December 31
2017 2016 Accounts receivable $ 504.6 $ 452.1
Inventory 1,051.9 1,037.0 Accounts payable (346.4 )
(294.3 ) Subtotal 1,210.1 1,194.8 Allowance for doubtful
accounts 6.6 7.3 LIFO reserve (89.3 ) (97.3 ) Inventory reserves
157.6 169.0 Managed working capital $
1,285.0 $ 1,273.8
Annualized prior 3 months sales
$ 3,463.5 $ 3,184.2
Managed working capital as a % of
annualized sales
37.1 % 40.0 %
March 31, 2017 change in managed working
capital
$ 11.2 As part of managing the liquidity in our business, we
focus on controlling managed working capital, which is defined as
gross accounts receivable and gross inventories, less accounts
payable. In measuring performance in controlling this managed
working capital, we exclude the effects of LIFO and other inventory
valuation reserves and reserves for uncollectible accounts
receivable which, due to their nature, are managed separately.
Allegheny Technologies Incorporated and
Subsidiaries Other Financial Information Debt to
Capital (Unaudited, dollars in millions)
March
31 December 31 2017 2016 Total debt
(a) $ 1,961.4 $ 1,894.1 Less: Cash (159.8 ) (229.6 )
Net debt $ 1,801.6 $ 1,664.5 Net debt $ 1,801.6 $ 1,664.5
Total ATI stockholders' equity 1,394.2 1,355.2
Net ATI capital $ 3,195.8 $ 3,019.7
Net debt to
ATI capital 56.4 % 55.1
% Total debt (a) $ 1,961.4 $ 1,894.1 Total ATI
stockholders' equity 1,394.2 1,355.2
Total ATI capital $ 3,355.6 $ 3,249.3
Total debt to total
ATI capital 58.5 % 58.3
% (a) Excludes debt issuance costs. In
managing the overall capital structure of the Company, some of the
measures that we focus on are net debt to net capitalization, which
is the percentage of debt, net of cash that may be available to
reduce borrowings, to the total invested and borrowed capital of
ATI (excluding noncontrolling interest), and total debt to total
ATI capitalization, which excludes cash balances.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170425005837/en/
Allegheny TechnologiesDan L. Greenfield, 412-394-3004
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