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Allegheny Technologies reports 2Q loss despite higher sales

| Tuesday, July 22, 2014, 8:30 a.m.

Allegheny Technologies Inc. CEO Rich Harshman expects benefits from its $1.2 billion flat-rolled products mill at its Brackenridge Works to improve as full-scale production gets closer.

“We'll be better at realizing the true benefits at the end of 2015,” Harshman told analysts on Tuesday as the specialty metals and titanium producer reported a second-quarter loss it blamed on startup costs at the mill and one in Rowley, Utah.

But “my instinct is yes,” he said, that the Downtown-based company will see operating profit improvements better than his forecast of $150 million to $250 million a year when the mill hits full use next year.

“And it will be better at the end of 2016; there will be continuing benefits. This is a unique asset that will enable us to make products that can't be produced today,” Harshman said.

Despite the positive tone, Wall Street didn't like ATI's results, though they beat analysts' estimates. Its stock fell 3.5 percent, trading at $43.84, down $1.60.

Allegheny Technologies built the mill in Harrison and titanium sponge production plant in Utah to take advantage of increasing demand from aerospace, oil and natural gas and other markets, Harshman said.

“It's been five years since ATI's previous strong growth cycle abruptly ended with the 2008 financial crisis,” Harshman told analysts. “It now appears that the decline and trough is behind us, as most of our markets showed improved demand in the second quarter.

“While we are not satisfied with our results, positive signs and momentum continue to build.”

Revenue increased 13 percent from the first quarter, from nickel-based and titanium alloys. Sales to oil and gas were up 30 percent, and aerospace has more than 20,000 large jet engines on order, he said.

Harshman expects third-quarter operating results to improve by $15 million to $20 million compared to the second quarter.

ATI's “long-term outlook is improving,” said analyst Josh W. Sullivan with Sterne Agee. “Markets continue to improve across the board.”

Lloyd T. O'Carroll, senior analyst at Northcoast Research, said commissioning the two plants takes money and time, but, “the basic business sounds like it's getting better, along with demand and volume. So the question is, when will the earnings be there? The benefits are going to be quite large, and I think it will be higher than the $150 million, but it may not be until later in 2014.”

When the Utah plant begins producing high-quality titanium next year, ATI can sell it for double the price it gets now, O'Carroll said. Titanium sponge is the basic form of the metal, produced by chemically processing several minerals.

ATI reported a loss of $3.8 million, or 3 cents a share, compared to a profit of $4.4 million, or 4 cents a share, a year ago. Revenue increased 5.9 percent to $1.12 billion from 1.06 million last year.

Results included expenses of $2.8 million, after tax, for startup costs at Brackenridge and $8.1 million at the Utah plant. Excluding the plant costs, adjusted earnings per share of 4 cents topped analysts' consensus estimate of zero cents a share, and revenue beat a $1.05 billion estimate.

John D. Oravecz is a Trib Total Media staff writer. Reach him at 412-320-7882 or joravecz@tribweb.com.

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