Allegheny Technologies Inc. reported a net loss of $13.4 million (including special charges) on sales of $710.0 million for the second quarter and a net loss of $7.5 million (including special charges) on sales of $1.54 billion for the first six months of 2009.
Second Quarter Results—The $13.4-million ($0.14 per share) net loss, which includes special charges, compares to net income of $168.9 million ($1.66 per share) for the year-ago second quarter.
Results included non-recurring after-tax charges of $17.0 million ($0.17 per share) related to debt retirement as well as the tax consequences of the company’s $350-million voluntary pension contribution. Excluding these special charges, net income was $3.6 million, or $0.03 per share. Last year’s results included a favorable one-time net tax benefit of $11.2 million ($0.11 per share).
Sales of $710.0 million represent a 51% decrease compared to sales of $1.46 billion in the year-ago second quarter, primarily as a result of significantly lower raw material surcharges and indices, reduced base selling prices for most products, and lower shipments. Direct international sales represented 32.5% of total sales, compared to 27% for the 2008 comparable period. Comparing current sales to the second quarter 2008, sales decreased 36% in the High Performance Metals segment, 60% in the Flat-Rolled Products segment, and 56% in the Engineered Products segment.
Six-Month Results—The $7.5-million ($0.08 per share) net loss, which includes special charges, compares to net income of $310.9 million ($3.06 per share) in the first six months of 2008. Excluding special charges, net income would have been $9.5 million ($0.09 per share).
Sales of $1.54 billion compare to sales of $2.80 billion in the comparable year-ago period.
Management Comments—“ATI was profitable in the second quarter, before special charges, and ended the quarter with significant cash on hand and an improved balance sheet,” said L. Patrick Hassey, Chairman, President and CEO. “We saw signs of stabilization in some of our markets during the quarter, but few indications of meaningful recovery.
“We remain confident in the intermediate and long-term growth potential of our core markets,” continued Hassey. “ATI has the financial resources and flexibility to continue our strategic investments and growth initiatives and to introduce important new alloys and products. Our focus is to continue to develop or expand strategic relationships with key global customers to be ready to meet their needs as economic conditions improve and core markets recover.
“We continue to deploy and execute our plan to effectively compete and we are strengthening and positioning ATI for long-term success,” continued Hassey. “ATI benefited from our global reach as direct international sales were 32.5% of total sales in the second quarter 2009. Total titanium shipments were over 9.8 million pounds in the second quarter and over 20 million pounds for the first half 2009 in spite of the aerospace market slowdown.
“As expected, second quarter operating profit improved, compared to the first quarter, in our Flat-Rolled Products segment primarily due to reduced out-of-phase raw material surcharges and improvement in base prices for our stainless sheet products. In our High Performance Metals segment, demand remained good for our exotic alloys from the chemical process industry and the growing nuclear electrical energy market. However, operating profit from our titanium alloys and nickel-based alloys and superalloys in this segment deteriorated more than we expected due to significant inventory reduction actions primarily in the jet engine supply chain. The aerospace supply chain is responding to lower current build rates, uncertain near-term build rates, and reduced demand from the aftermarket due to the global recession. In our Engineered Products segment, three of the four operating companies were not profitable due to weak demand from nearly all markets, particularly wind energy.
Second Quarter Financial Results—Segment operating profit was $53.9 million (7.6% of sales), compared to operating profit of $275.4 million (18.8% of sales) for the year-ago second quarter. Results were negatively affected by lower shipments, reduced base selling prices, and approximately $17 million of out-of-phase raw material surcharges and indices (due primarily to the rapid decrease in the cost of most raw materials in late 2008 and the long manufacturing times for some products). These negative impacts were partially offset by a LIFO inventory valuation reserve benefit of $27.0 million. Last year’s results included a LIFO inventory valuation reserve charge of $3.4 million.
Cash flow from operations for the first half of 2009 was $81.3 million, which benefited from a reduction in managed working capital of $352.8 million due to lower business activity and raw material costs, partially offset by a voluntary net cash pension contribution of $241.5 million ($350 million contribution less $108.5 million federal income tax refund). Excluding the voluntary net cash pension contribution, cash flow from operations was $322.8 million for the first half of 2009.
Cash on hand increased $380.8 million from 2008 year-end to $850.7 million at the end of the second quarter 2009. Gross cost reductions, before the effects of inflation, totaled $74.2 million company-wide in the 2009 first half.
Outlook—Looking ahead, Hassey said the company is expecting business conditions in the third quarter to remain challenging. “While we see some signs of stabilization in a few markets, in general, demand remains low, the pricing environment is challenging, and visibility is limited.
“We expect ATI’s third quarter 2009 earnings to be at or near break even. We expect to end the third quarter 2009 with a significant amount of cash on hand while continuing to self fund our strategic capital investments.
“We remain confident in the intermediate and long-term growth potential of our core global markets,” continued Hassey. “We intend to use the current difficult market conditions to continue to positively differentiate ATI as a uniquely positioned, diversified, technology-driven global specialty metals company with unsurpassed manufacturing capabilities. Our strategic direction and vision remain intact.”
Allegheny Technologies Inc. is one of the largest and most diversified specialty metals producers in the world with revenues of $5.3 billion during 2008. The company’s products include titanium and titanium alloys, nickel-based alloys and superalloys, grain-oriented electrical steel, stainless and specialty steels, zirconium, hafnium, and niobium, tungsten materials, and forgings and castings.