Allegheny Technologies Incorporated Q2 2010 Earnings Call Transcript

Allegheny Technologies Incorporated Q2 2010 Earnings Call Transcript
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Allegheny Technologies Incorporated (ATI)

Q2 2010 Earnings Call Transcript

July 28, 2010 1:00 pm ET

Executives

Dan Greenfield – Director, IR & Corporate Communications

Pat Hassey – Chairman, President and CEO

Rich Harshman – EVP, Finance and CFO

Analysts

Luke Folta – Longbow Research

Gautam Khanna – Cowen & Company

Mark Parr – KeyBanc Capital Markets

Chris Olin – Cleveland Research

Stephen Levenson – Stifel Nicolaus

Timna Tanners – UBS Investment

Brian Yu – Citi

John Tumazos – John Tumazos Very Independent Research

Kuni Chen – Bank of America/Merrill Lynch

Dan Whalen – Capstone Investments

Presentation

Operator

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Good day, ladies and gentlemen, and welcome to the second quarter 2010 Allegheny Technologies earnings conference call. My name is Keisha, 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 towards the end of this conference. As a reminder, this call is being recorded for replay purposes.

I’ll now like to hand the call over to Mr. Dan Greenfield, Director, Investor Relations and Corporate Communications. Please proceed.

Dan Greenfield

Thank you, Keisha. Good afternoon, and welcome to the Allegheny Technologies earnings conference call for the second quarter 2010. This conference call is being broadcast on our Web site 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. Actual results may differ materially. Here is Pat Hassey.

Pat Hassey

Thanks, Dan, and thanks to everyone joining today’s call. Our key global markets are performing well. Our strategy has been to target certain markets that we believe deliver long-term secular growth trends that are greater than GDP. The fundamentals of these markets remain intact, even during a time of general economic uncertainty, primarily here in the U.S. and Europe. We continue to see 2010 as a transition year to the resumption of growth.

Here are some highlights of our second quarter 2010 performance. Sales were up 17% over last quarter to over $1billion. Earnings improved $0.36 per share, which includes nearly $9 million of start-up and idle facility costs and an additional $5.5 million LIFO inventory valuation reserve charge. Shipments of most of our products reached their highest levels in six quarters.

Order entry for our High Performance Metals segment products from the aerospace and oil and gas markets continue to improve with lead times extending into the fourth quarter.

ATI is not immune from short-term economic conditions. Caution and uncertainty best describe our stainless business, which is primarily driven by U.S. and global economic conditions.

Some additional second quarter highlights. We remained focused on improving our cost structure with over $35 million of gross cost reductions in the second quarter bringing our year-to-date total to $72 million.

Total titanium shipments, including conversion of our Uniti Titanium joint venture were 9.7 million pounds in the second quarter. This brings 2010 total titanium shipments to nearly 19 million pounds.

During the second quarter, titanium shipments increased 17% or over 1 million pounds compared to the first quarter of 2010 in our High Performance Metal segment from improved demand in the aerospace market. Flat-Rolled Products’ titanium shipments including Uniti joint venture conversion products were about 2.6 million pounds.

Our direct international sales increased over 35% of sales in the second quarter. Today, ATI is more globally focused on markets than ever before.

We continue to introduce innovative new products and achieve several major new product milestones in the second quarter. We announced the first long-term agreement for the use of our new ATI 718Plus alloy for jet engine applications.

ATI 718Plus alloy is the first new nickel based super alloy introduced to the jet engine market in at least 40 years. We believe this is the first of many applications of this innovative new product.

Our game-changing high-strength titanium ATI 425 alloy was introduced to the aerospace and defense market during the AeroMat Technical Conference, and the Eurosatory, the European Defense Conference.

We recently concluded a year long program to characterize the mechanical properties of ATI 425 alloy. Results have been approved and this proprietary alloy is now certified for a broad application in the aerospace industry.

Customer interest in this new product is strong, particularly for the newly certified sheet product. The aerospace and defense industries now have for the first time a high strength titanium alloy that is available in long length sheet coils.

The industry now has for the first time a high strength titanium alloy that is cold-rollable and cold-formable. These attributes are expected to significantly reduce the full cost of producing parts made of high strength titanium.

At last week’s Farnborough Air Show, our technical and marketing people met with many existing and new customers, who are considering this new product. We now have a long list of customers, some new to ATI, who are interested in ATI 425 alloy.

The protocol for introduction to the market goes like this. First, design allowables approve for sheet and plate, this is done. Second, results approved for addition in the Metallic Materials Properties Development and Standardization Hand Book Number 6, a prerequisite for broad application of this alloy in the aerospace industry, this is done.

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