Allegheny Technologies Incorporated Q1 2010 Earnings Call Transcript

Allegheny Technologies Incorporated Q1 2010 Earnings Call Transcript
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Allegheny Technologies Incorporated (ATI)

Q1 2010 Earnings Call Transcript

April 28, 2010 1:00 pm ET

Executives

Dan Greenfield – Director, IR and Corporate Communications

Pat Hassey – Chairman, President and CEO

Rich Harshman – EVP, Finance and CFO

Analysts

David Martin – Deutsche Bank

Luke Folta – Longbow Research

Timna Tanners – UBS

Steve Levenson – Stifel Nicolaus

Michael Gambardella – J.P. Morgan

Brett Levy – Jefferies & Company

Brian Yu – Citi

Kuni Chen – Bank of America/Merrill Lynch

Gautam Khanna – Cowen & Company

Peter Jacobs – Ragen MacKenzie

Dan Whalen – CapStone Investments

John Tumazos – John Tumazos Very Independent Research

Sal Tharani – Goldman Sachs

Tim Hayes – Davenport & Company

Presentation

Operator

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Previous Statements by ATI
» Allegheny Technologies Incorporated Q4 2009 Earnings Call Transcript
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Good day, ladies and gentlemen. And welcome to the first quarter 2010 Allegheny Technologies earnings conference call. My name is Kesha, and I’ll be your operator for today. At this time, all participants are in listen-only mode. We will conduct the question-and-answer session toward the end of this conference. (Operator Instructions)

As a reminder, this conference is being recorded for replay purposes. I will now like to turn the call over to Mr. Dan Greenfield, Director, Investor Relations and Corporate Communications. Please proceed, sir.

Dan Greenfield

Thank you, Keisha. Good afternoon and welcome to the Allegheny Technologies earnings conference call for the first quarter 2010. This conference call is being broadcast on our website at www.atimetals.com. Members of the media have been invited to listen to this call.

Participating on the call today are Pat Hassey, Chairman, President and Chief Executive Officer; and Rich Harshman, Executive Vice President, Finance and Chief Financial Officer. All references to net income and earnings in this conference call mean net income and earnings attributable to ATI.

After some initial comments, we will ask for questions. During the question-and-answer session, please limit yourself to two questions to be considerate of others on the line. Please note that all forward-looking statements this afternoon are subject to various assumptions and caveats as noted in the earnings release. After results may differ materially.

Here is Pat Hassey.

Pat Hassey

Thanks, Dan, and thanks to everyone for joining today's call. Let's start by discussing our first quarter performance and some positive implications for our business going forward.

Sales were up 10% over last quarter to approximately $900 million. Apples to apples, earnings were up from last quarter's $0.10 per share, excluding $0.26 of positive LIFO to $0.24 per share without the healthcare legislation charge or 140%.

Shipments most of our products increased, the one exception being exotic alloys, in many cases by double digits compared to the fourth quarter of 2009.

More importantly, overall order receipts were up significantly causing lead times to extend by an additional two to eight weeks for high performance metals, again, exotic alloys being the exception.

Asset utilization rates increased throughout the first quarter with the highest utilization being in March. These are all signs that we are recovering from the global contraction that impacted our business in 2009.

In our business, recovery begins with volume, which improves capacity utilization. We are seeing continued positive signs, recovery and improving volume. Second quarter production schedules are basically booked full at our current utilization rates. Lead times are extending and scrap is in short supply.

Based on these continued market conditions, we believe there may be opportunities for improving base prices in the second half of 2010 as the business cycle continues to recover.

Raw material surcharges for the second quarter shipments will be higher due to rising material costs. However, in our flat roll product segment, base prices for many products, particularly stainless sheet plate, remain low because of these rapidly rising materials surcharges.

The customer's total transaction price is up, but the base or conversion price is still very low. We believe we can see some moderation of raw material prices, coupled with increasing base prices in the second half of 2010.

These are all signs that a true business cycle recovery is underway. With steady quarter-on-quarter improvement, we continue to see 2010 as the transition year to resumption of secular growth in our key markets.

One more point, our direct international sales increased to approximately 34% of sales in the first quarter 2010. Today, ATI is more globally focused than ever before. A particularly important note, our flat-roll product segment achieved record 35% of direct international sales in the first quarter of 2010.

Our international business is recovering. An example, first quarter 2010 order entry from Asia is more than three times the order level of the first quarter of 2009. Overall, our order book increased throughout the first quarter and continues to grow in the second quarter.

Of note in comment is ATI's total first quarter titanium mill product shipments. This includes our high performance metals plus flat-roll products plus Unity joint venture conversion.

Total titanium mill product shipments for the first three months 2010 were 9.2 million pounds. We now believe we will ship over 40 million pounds of titanium products in 2010. So stay tuned for more as we go forward this market.

Moving to our segments. All figures are comparisons of the first quarter of 2010 to the fourth quarter 2009 since this is the most current indication of cyclical recovery. In our high performance metal segment, shipments of our titanium based alloys increased 17%. Shipments of our nickel-based alloys, superalloys and specialty alloys increased 7%.

This increase follows a 21% improvement in the fourth quarter of 2009 from the third quarter of 2009. Jet engine supply chain has begun to recover as demand continues to build.

After reducing inventories in 2009, the supply chain is becoming more in line with current aircraft build rates and increasing after market demand. In addition, the jet engine supply chain appears to be more confident that the aircraft build rates are secure and may increase going forward.

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