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ATI notches loss in 4Q to end 'difficult year'

| Tuesday, Jan. 26, 2016, 8:30 a.m.

Allegheny Technologies Inc. expects its high-value components business to play a bigger role in the company's future growth and profitability as its commodity stainless steel division struggles with a protracted labor dispute, weak prices and overseas competition.

The Downtown-based specialty steelmaker highlighted the potential of the parts business, which supplies the fast-growing aerospace industry, on Tuesday as it reported a 29 percent drop in fourth-quarter revenue and a $227 million loss driven by one-time expenses related to the declining value of its Flat Rolled Products unit.

ATI CEO Richard Harshman told analysts on a conference call that the company will “take all necessary actions to return ATI to profitability,” including temporarily halting products that are unprofitable. He pointed to the decision in December to idle plants in Midland and Gilpin that make stainless steel and grain-oriented electrical steel, and layoffs in October of an undisclosed number of salaried workers, which is expected to save $23 million a year.

“The products we make have to be profitable, and if they're not then we're not going to make them,” Harshman said.

ATI's specialty alloy parts for next-generation airplanes and jet engines are positioned for “sustained, profitable growth,” he said, predicting that the company will generate $1 billion in additional revenue over the next five years “driven largely by aerospace.”

The company's stock, which had been down early on Tuesday, recovered and closed up 3.5 percent to $7.96.

John Tumazos, an analyst and owner of Tumazos Very Independent Research in Holmdel, N.J., said he is concerned about how the company will increase revenue as it idles capacity and cuts capital spending that is needed to develop high-value products.

In particular, Tumazos said ATI needs to boost volumes at its Brackenridge Hot Rolling & Processing Facility, a $1.2 billion state-of-the-art plant in Harrison that was opened last year.

“They have this problem: they need more volume for Brackenridge,” he said. “They need more volume and more revenue, especially in the flat-rolled segment.”

Flat Rolled Products unit sales dropped 50 percent in the October-December quarter, as prices of standard stainless products declined 32 percent, the company said. The decline contributed to an overall drop in revenue to $738.9 million in the quarter, compared with revenue of $1 billion in the same quarter a year earlier.

The company reported a net loss of $226.9 million, or $2.12 a share, in the quarter, compared with net income of $22.1 million, or 20 cents a share, a year earlier.

The United Steelworkers union, which represents 2,200 workers who have been locked out of a dozen ATI Flat Rolled Product plants since August blamed the company's loss on “irresponsible management.”

“The key to any company's success is a skilled, experienced workforce,” Tom Conway, the union's vice president, said in a written statement. “For the past six months, ATI has turned its back on these dedicated employees and their families.”

ATI spokesman Dan Greenfield declined to comment on the union's statement.

The company and union restarted talks in late December but have not reached an agreement to end the contract stalemate. ATI is seeking concessions on health care and other benefits that the union says would “do absolutely nothing to solve” the company's challenges with a global steel glut caused by unfairly traded imports from China and other countries.

In addition to weak demand and low prices, ATI's loss was made worse by the company recording $267 million in pre-tax charges related to writing down the value of the struggling Flat Rolled Products business.

Without the one-time items, ATI's adjusted net loss was $60 million, or 56 cents a share, which missed Wall Street's predictions. Analysts had estimated the company would report an adjusted net loss of 43 cents a share on sales of $834.6 million.

Alex Nixon is a Tribune-Review staff writer. Reach him at 412-320-7928 or anixon@tribweb.com.

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