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Allegheny Technologies' CEO ties 2Q losses to benefits, working conditions

| Tuesday, July 21, 2015, 8:30 a.m.
Rich Brestensky, secretary/treasurer of the Steelworkers Organization for Active Retirees, marches with fellow retirees from Allegheny Technologies Inc. during an informational picket at 6 PPG Place, where ATI has its corporate offices, on Tuesday morning, July 21, 2015. The picket took place at the same time the company reports earnings. The retirees are concerned about losing benefits as the USW negotiates a new contract with the company.
James Knox | Trib Total Media
Rich Brestensky, secretary/treasurer of the Steelworkers Organization for Active Retirees, marches with fellow retirees from Allegheny Technologies Inc. during an informational picket at 6 PPG Place, where ATI has its corporate offices, on Tuesday morning, July 21, 2015. The picket took place at the same time the company reports earnings. The retirees are concerned about losing benefits as the USW negotiates a new contract with the company.
Union retirees from Allegheny Technologies Inc. and members of the Steelworkers Organization for Active Retirees march in an informational picket at 6 PPG Place, where ATI has its corporate offices, on Tuesday morning, July 21, 2015, at the same time the company reports earnings.
James Knox | Trib Total Media
Union retirees from Allegheny Technologies Inc. and members of the Steelworkers Organization for Active Retirees march in an informational picket at 6 PPG Place, where ATI has its corporate offices, on Tuesday morning, July 21, 2015, at the same time the company reports earnings.
Rich Brestensky, secretary/treasurer of the Steelworkers Organization for Active Retirees (right), and SOAR chapter president Tony Slomkoski march with fellow retirees from Allegheny Technologies Inc. in an informational picket at 6 PPG Place, where ATI has its corporate offices, on Tuesday morning, July 21, 2015 at the same time the company reports earnings.
James Knox | Trib Total Media
Rich Brestensky, secretary/treasurer of the Steelworkers Organization for Active Retirees (right), and SOAR chapter president Tony Slomkoski march with fellow retirees from Allegheny Technologies Inc. in an informational picket at 6 PPG Place, where ATI has its corporate offices, on Tuesday morning, July 21, 2015 at the same time the company reports earnings.

Increased losses at Allegheny Technologies Inc. in the second quarter focused attention Tuesday on the contentious contract negotiations between the Downtown-based specialty metals company and its union.

CEO Richard Harshman said lowering the cost of employee benefits and gaining flexibility over working conditions are key factors in returning the company to profitability during a challenging market.

The United Steelworkers union dismissed his comments as “rhetoric.” Its members have stayed on the job since their labor agreement expired June 30.

“What we're trying to accomplish in our negotiations is a stabilization of our current cost structure,” Harshman told analysts on a conference call to discuss earnings.

But the union said ATI's long-term costs for benefits aren't related to the downturn in steel prices.

“The union isn't getting baited into discussions about issues that do not come due for decades on the basis of a tight current steel market,” said USW International Vice President Tom Conway, who heads the USW Bargaining Committee.

“This rhetoric from ATI is wasteful and foolish, and their position on some of these issues is detrimental to all the stakeholders at ATI,” he said.

Falling steel prices, surging imports and reduced demand from the oil and gas industry continue take a bite out of the company's sales, which were down 9 percent to $1 billion in the April-June quarter.

ATI is seeking concessions on benefits and working conditions. But Harshman said ATI is not asking to reduce pay, even though the wages it pays are among the highest for manufacturing workers in the nation.

“The aim is not to do that 100 percent on the backs of the USW; that's just not the case at all,” he said.

The company is seeking to reduce its contributions to worker and retiree health care, and eliminate a guaranteed eight-hour workday and 40-hour workweek, among a host of changes that would give it greater control over when employees work.

The expired contract covers 2,500 workers at 11 ATI flat-rolled products plants in four states, including 1,100 workers at specialty steel plants in Harrison, Gilpin and Vandergrift.

Tony Slomkoski, 71, a retiree from Sarver, said he's concerned about having to contribute more for the supplemental Medicare insurance ATI provides to retirees. When he retired, he contributed no money for the plan. Now, he pays $100 a month.

“That's a big hit in the pocket when you're on a fixed income,” he said.

Slomkoski, president of the Steelworkers Organization of Active Retirees in Brackenridge, was one of a dozen retirees who picketed Tuesday outside PPG Place in Downtown, where ATI has its corporate offices. He said it is unfair for Harshman to use the company's financial troubles to try to win concessions from workers when the executive received a big pay raise last year.

“This is something that really irks the workers,” he said.

Harshman was paid a total of $8 million last year, up 70 percent from $4.7 million in 2013. His total compensation was padded by a bigger base salary, more stock awards, the return of a $1.4 million bonus that he didn't receive in 2013, and a pension that was valued higher.

ATI's shareholders barely approved the compensation in a non-binding vote in May. The company lost $2.5 million last year, compared with net income of $154 million in 2013.

“Harshman seems to be an odd choice as a spokesman about reducing costs during tough times,” Conway said. “While his shareholders demand an accounting of his undeserved money grab, he lost money for the company.”

ATI reported a net loss of $16.4 million, or 15 cents a share, in the April-June quarter. The results compared with a net loss of $3.8 million, or 3 cents a share, in the same period last year.

“This was a challenging quarter due to business conditions in the flat-rolled products segment and further weakening in demand from the oil and gas market,” Harshman said in a written statement.

Last week, ATI said it expected to report a loss between $16 million and $18 million. Prior to that, analysts predicted net income of 24 cents a share, according to data from Bloomberg.

The company's shares closed down $3.41, or 13.6 percent, to $21.66.

John Tumazos, an analyst with Tumazos Very Independent Research in Holmdel, N.J., said investor sentiment turned negative because there was nothing hopeful in Harshman's comments to gauge when conditions may improve at ATI.

Steel prices are still falling, imports from China continue unabated, contract negotiations with the steelworkers union haven't wrapped up and financial losses are increasing, Tumazos said.

“They didn't predict any improvement,” he said. “They didn't say anything other than business is difficult.”

Alex Nixon is a Trib Total Media staff writer. Reach him at 412-320-7928 or anion@tribweb.com.

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