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Allegheny Technologies Inc. Reports Operating Results (10-Q)

May 06, 2009 | About:

Allegheny Technologies Inc. (ATI) filed Quarterly Report for the period ended 2009-03-31.

Allegheny Technologies Incorporated is one of the largest and most diversified producers of specialty materials in the world. The company's talented people use innovative technologies to offer growing global markets a wide range of specialty materials including stainless steel nickel-based and cobalt-based alloys and superalloys titanium and titanium alloys specialty steel alloys zirconium and related alloys and tungsten-based specialty materials. The goal is to be the low cost high quality supplier to global markets. (PRESS RELEASE) Allegheny Technologies Inc. has a market cap of $3.73 billion; its shares were traded at around $38.06 with a P/E ratio of 9 and P/S ratio of 0.7. The dividend yield of Allegheny Technologies Inc. stocks is 1.9%.

Highlight of Business Operations:

Segment operating profit for the first quarter 2009 was $55.9 million, or 6.7% of sales, compared to $240 million, or 17.9% of sales, in the first quarter 2008. Segment operating profit was adversely affected by the decline in selling prices and shipments due to the global economic recession. The selling prices for many of our products include surcharges or indices by which we attempt to match changes in raw material costs with shipments. The first quarter 2009 results were negatively impacted by approximately $65 million in out-of-phase raw material surcharges and indices due primarily to the rapid decrease in the cost of raw materials in the second half of the fourth quarter 2008. This was partially offset by a LIFO inventory valuation reserve benefit of $27.5 million as a result of the continuing decline in raw material costs in 2009. Results for the first quarter 2008 included a LIFO inventory valuation reserve charge of $1.3 million. First quarter 2009 benefited from gross cost reductions, before the effects of inflation, of $34.8 million. Segment operating profit (loss) as a percentage of sales for the three month periods ended March 31, 2009 and 2008 was:

Net income attributable to ATI for the first quarter 2009 was $5.9 million, or $0.06 per share, compared to the first quarter 2008 of $142.0 million, or $1.40 per share. First quarter 2009 results include an income tax benefit of $5.0 million compared to an income tax provision of $77.9 million, or 35.2% of income before tax for the first quarter 2008. The 2009 first quarter benefited from a lower income tax provision due primarily to $5.1 million of discrete adjustments associated primarily with adjusting prior years estimated taxes. The 2008 first quarter included a discrete benefit of $2.6 million related to foreign taxes.

We continued to maintain our solid balance sheet. We ended the 2009 first quarter with cash on hand of $506 million, an increase of $36.1 million from year end 2008. This increase in cash was after investing $108.6 million in self-funded capital projects, paying dividends of $17.6 million, and a reduction in borrowings of $5.6 million during the quarter. At the end of the 2009 first quarter, we had no borrowings under our $400 million domestic credit facility and no significant near-term debt maturities. Total debt to total capitalization improved to 20.5%. Net debt as a percentage of total capitalization was a negative 0.1% as cash on hand exceeded total debt at the end of the 2009 first quarter.

Segment operating profit decreased to $7.7 million, or 2.0% of sales, compared to $102.9 million, or 13.8% of sales, for the 2008 period. The decline in operating profit primarily resulted from lower shipments and average base selling prices for most of our products and the negative impact from $48 million of higher cost raw materials purchased in 2008 flowing through cost of sales and not being in phase with raw material surcharges included in selling prices. This was due primarily to the rapid decrease in raw material costs in the second half of the fourth quarter 2008 and the long manufacturing times of some of our products. These negative impacts were partially offset by a $26.2 million decrease in the LIFO inventory valuation reserve and the benefits of gross cost reductions. There was no change in our LIFO inventory valuation reserve in the first quarter 2008. Results for the 2009 first quarter benefited from $12.1 million in gross cost reductions.

Retirement benefit expense, which includes pension expense and other postretirement expense, increased to $37.3 million in the first quarter 2009, compared to zero in the first quarter 2008. This increase is primarily a result of lower returns on plan assets in 2008 notwithstanding the positive benefits of the voluntary pension contributions made over the last several years. We now expect 2009 retirement benefit expense to be approximately $149 million, compared to $8.4 million of expense in 2008. For the full year, we now expect pension expense to be $126 million in 2009, compared to pension income of $12.2 million in 2008. For the first quarter 2009, retirement benefit expense included in cost of sales was $27.7 million and the amount included in selling and administrative expenses was $9.6 million. For the first quarter 2008, the amount of retirement benefit income included in cost of sales was $0.3 million, and the retirement benefit expense included in selling and administrative expenses was $0.3 million.

For the three months ended March 31, 2009, cash provided by operating activities was $168.9 million, which benefited from a $216.2 million reduction in managed working capital due to lower business activity and raw material costs. Investing activities included capital expenditures of $108.6 million. Cash used in financing activities was $23.6 million in the first quarter 2009, and included dividend payments of $17.6 million, and a reduction in borrowings of $5.6 million. At March 31, 2009, cash and cash equivalents totaled $506.0 million, an increase of $36.1 million from year end 2008.

Read the The complete ReportATI is in the portfolios of Kenneth Fisher of Fisher Asset Management, LLC, Kenneth Fisher of Fisher Asset Management, LLC.

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