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Allegheny Technologies profit, sales fall in 2Q

| Wednesday, July 24, 2013, 8:03 a.m.

Cost cutting and completing a $1.2 billion hot rolling mill are the focus at Allegheny Technologies Inc. since profits plunged in the second quarter from weakened demand for many products.

“Cost reduction remains a priority,” CEO Richard Harshman said on Wednesday.

The company cut more than $79 million during the first six months of the year, including a 2 percent reduction in jobs, or about 300.

The largest effect was on a zirconium plant in Albany, Ore., spokesman Dan Greenfield said, the result of the shutdown of 48 nuclear power plants in Japan after the 2011 earthquake and tsunami. Zirconium is used in fuel rods in nuclear reactors.

The Downtown-based manufacturer of specialty steel and titanium said net income was $4.4 million, or 4 cents a share, compared with $56.4 million, or 50 cents a share, a year ago. Analysts' consensus estimate of earnings per share was 11 cents.

Sales fell 16 percent to $1.14 billion versus $1.36 billion last year.

Shares closed at $26.92, down 97 cents, and have fallen 11.3 percent this year.

Cash on hand fell to $74.1 million on June 30, compared with $304.6 million on Dec. 31, the lowest level in 10 years as the company continues to spend heavily to complete the mill at its Allegheny Ludlum Brackenridge Works in Harrison.

Allegheny Technologies is spending $575 million on capital projects. About 90 percent of that is going toward the mill, which it says will transform its flat-rolled products business. The project is on schedule and on budget to be production-ready by the end of the year.

By 2015, when the company will have certified more than 200 products on the mill, operating profit could jump by $150 million to $250 million a year, Harshman said in April.

The company moved to shore up its finances with a $500 million debt offering that was “well received” in debt markets, Harshman told analysts during a conference call. Credit rating agencies Standard & Poor's and Moody's recently reaffirmed the company's investment-grade rating with a stable outlook, he said.

Even so, “challenging conditions in many of our end markets continued during the second quarter,” Harshman said. “Lackluster global demand for standard stainless and grain-oriented electrical steel products combined with excess global supply and falling raw material surcharges for stainless resulted in continuing pricing pressure and reduced margins.”

Analyst Gautam Khanna at Cowen & Co. said in a note to investors that he expects estimates for Allegheny Technologies's 2013 results to fall to under 30 cents a share from 68 cents this quarter, $1.29 in the first quarter and $2.15 in January.

“Despite very low expectations, results are even worse than expected,” said Julie Yates, an analyst at Credit Suisse, in a note.

Harshman's forecast for the second half and particularly the third quarter has deteriorated, she said, because of seasonal factors and low demand in Europe.

“Plus, ATI is not seeing an improvement in the jet engine aftermarket, which is divergent from the strength seen at (manufacturers) and other suppliers this earnings season,” Yates said.

Operating profit before expenses such as interest, taxes and depreciation was $72 million, or 6.3 percent of sales, Harshman noted.

“While the short-term remains challenging in many of our end markets, we are confident in the strong profitable growth opportunities for ATI over the next three to five years,” he said.

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

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