Allegheny Technologies' 4Q profit up despite lower sales
Allegheny Technologies Inc. CEO Rich Harshman says the next two years will be better than 2013, but his optimistic outlook wasn't enough to ease concerns about the company's challenges and a disappointing quarter.
The Downtown-based manufacturer of specialty steel and titanium on Wednesday reported higher fourth-quarter net income, but only because it benefited from the sale of its tungsten business to Kennametal Inc. for $605 million.
“They had an unusually bad quarter in titanium and a loss from operations. It was not a quarter to write home about,” said analyst John Tumazos of Tumazos Very Independent Research of Holmdel, N.J.
The company reported fourth-quarter net income of $173.4 million, or $1.62 a share, compared with $10.5 million, or 10 cents a share, a year ago. Without a gain from the tungsten sale, ATI posted a loss from continuing operations of $83.8 million. Benefits from the sale were offset by $133 million in expenses from closing plants and revaluing inventory.
Revenue fell to $915.3 million from $1.02 billion a year ago because of low prices and shipments caused by the weak economy, Harshman said, underscoring the difficulties the company faced in 2013.
Investors sent the stock down $2.17, or 6.4 percent, to $32.01.
Tumazos said the market was reacting to the fact that only one of Allegheny Technologies various businesses, high-nickel alloys, had reasonable performance in 2013.
“Their fourth quarter was perverse,” he said, citing only eight million pounds of titanium sold during the period, even as Boeing is increasing production of its 787 Dreamliner from 10 to 14 planes per month.
“I think Allegheny is improving, but they've got to get more out of titanium, their core stainless steel and forging businesses,” Tumazos said.
Harshman told analysts in a conference call that “while these headwinds created challenging business conditions in the fourth quarter and throughout 2013, we are continuing to see long-term growth opportunities in many of our global markets.”
The company will benefit later this year and in 2015 from what Harshman calls a “game-changing investment” — its $1.2 billion flat-rolled products mill completed in December and now undergoing break-in testing at its Brackenridge Works in Harrison. It will reduce manufacturing times, lower costs and bring new business, he said.
ATI is now testing cold-rolled products, expected to be completed by the end of March. It will then begin testing on hot-rolled products, expected to be completed by Sept. 30.
“The (new mill) is expected to be producing all of ATI's flat-rolled products by the end of 2014,” Harshman said, standing by an April forecast that operating profit could jump by $150 million to $250 million a year when the mill is in full use.
Tumazos said the key for the company will be the Brackenridge mill. “It's going to be huge; in the fourth-quarter, in 2015 and 2016, they should see the benefits,” he said. “It's the mother of all rolling mills, the most versatile in the world.”
The company said it closed a titanium sponge-making plant in Albany, Oregon; a stainless flat-rolled finishing plant in New Castle, Ind., and will close another stainless plant in Wallingford, Conn., by midyear. In October, the company said it closed a fabricated components business in Bolingbrook, Ill., and said it intends to sell a iron casting business in Laporte, Ind. The closed plant in Oregon is being replaced by a new plant in Rowley, Utah, where product testing is underway.
Harshman said ATI's cost-cutting efforts produced $143 million in annual savings in 2013, up from a projected $100 million, and said the target for 2014 is another $100 million in savings.
Tumazos said the sale of the tungsten business was the “right thing to do.” That combined with ATI's other plant closings means management will have 13 fewer plants, and can focus on Brackenridge. “They have simplified the company.”
John D. Oravecz is a staff writer for Trib Total Media. He can be reached at 412-320-7882 or firstname.lastname@example.org.