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New mill will help Allegheny Technologies' bottom line, CEO says, as 1Q profit falls 82%

| Wednesday, April 24, 2013, 8:48 a.m.

The impact of Allegheny Technologies Inc.'s $1.2 billion hot-rolling mill on its bottom line will be significant, CEO Richard Harshman said on Wednesday as the specialty metals company reported an 82 percent drop in first-quarter profit.

The mill at Allegheny Ludlum Brackenridge Works in Harrison will “transform” the company's hot-rolled stainless steel business and be ready for limited production by the end of the year, he said. It is one of the Pittsburgh region's largest recent construction projects.

By 2015, when the company will have certified more than 200 products on the mill, operating profit at Downtown-based Allegheny Technologies could jump by $150 million to $250 million a year, Harshman said on a conference call with analysts.

The hot-rolled unit usually accounts for nearly half the company's revenue.

“It is designed to be different from any other facility in the industry,” Harshman said. The new mill will replace a 60-year-old mill that can produce no more than 50 percent of the products demanded by customers, and do it much faster. In 30 minutes it will transform a raw hot-rolled coil to a finished roll, compared to a two-week average by competitors, he said.

“It will transform our flat-rolled products segment, and make it the industry leader,” Harshman said.

The full impact of the project will be felt in 2015, when the company expects profit margins to increase on higher production, he said.

Allegheny Technologies on Wednesday said first-quarter net income fell to $10 million, or 9 cents a share, in line with a forecast issued last week. Sales for the period declined to $1.18 billion because of record-low selling prices caused by low-priced imports and weak demand in a variety of products.

A year ago, the Pittsburgh-based company reported first-quarter net income of $56.2 million, or 50 cents a share, on revenue of $1.35 billion.

“We saw continued sluggish demand from many of our major end markets,” said Harshman. Long term, he said market conditions are favorable for the company's key markets: aerospace, the oil, gas and chemical process industry, electrical energy, and medical.

Shares closed at $26.91, down 62 cents. The stock is down 11.4 percent this year.

Allegheny Technologies will spend heavily for the rest of the year to finish the Brackenridge mill, which will account for $450 million of the company's planned $550 million in capital expenditures, he said. This year will be the biggest in terms of spending on the project, he said. In the first quarter, $86.9 million was spent on capital projects, mostly the new mill.

Harshman repeated past statements that the money will come from cash generated by the company, but added for the first time that it will borrow cash from an existing line of credit, if necessary.

The company is focusing on cost cuts, Harshman said, and it achieved $40 million in the period, with at least $100 million the target for 2013.

The mill will be so automated that it won't add many jobs to the 920 workers employed at the Brackenridge Works, the company has said. It has about 3,000 employees across Western Pennsylvania and 11,500 overall.

John D. Oravecz is a staff writer for Trib Total Media. He can be reached at 412-320-7882.

or joravecz@tribweb.com.

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