Allegheny Technologies' CEO Discusses Q1 2012 Results - Earnings Call Transcript

Allegheny Technologies (ATI)

Q1 2012 Earnings Call

April 25, 2012 1:00 pm ET


Dan L. Greenfield - Vice President of Investor Relations & Corporate Communications

Richard J. Harshman - Chairman, Chief Executive Officer and President


Christopher David Olin - Cleveland Research Company

Timna Tanners - BofA Merrill Lynch, Research Division

Richard Tobie Safran - The Buckingham Research Group Incorporated

Kuni M. Chen - CRT Capital Group LLC, Research Division

Stephen E. Levenson - Stifel, Nicolaus & Co., Inc., Research Division

Sohail Tharani - Goldman Sachs Group Inc., Research Division

Thomas Mullarkey - Morningstar Inc., Research Division

Gautam Khanna - Cowen and Company, LLC, Research Division

John Charles Tumazos - John Tumazos Very Independent Research, LLC

Mark L. Parr - KeyBanc Capital Markets Inc., Research Division

David S. Martin - Deutsche Bank AG, Research Division



Good day, ladies and gentlemen and welcome to the First Quarter 2012 Allegheny Technologies Earnings Conference Call. My name is Keisha, and I'll be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to hand the conference over to Mr. Dan Greenfield, Vice President of Investor Relations and Corporate Communications. Please proceed.

Dan L. Greenfield

Thank you, Keisha. Good afternoon and welcome to the Allegheny Technologies Earnings Conference Call for the first quarter 2012. This conference call is being broadcast on our website at Members of the media have been invited to listen to this call. Participating in the call today are: Rich Harshman, Chairman, President and Chief Executive Officer; and Dale Reid, 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 2 questions to be considerate of others on the line. Please note that all forward-looking statements this afternoon caveat as noted in the earnings release. Actual results may differ materially. Here is Rich Harshman.

Richard J. Harshman

Thank you, Dan, and thanks to everyone for joining today's call. First quarter results were consistent with our expectations as strong secular growth continued in our key global markets and demand improved moderately from the domestic GDP-sensitive markets for our short-cycle products. Total revenues grew 10% compared to the first quarter 2011. Two big revenue growth drivers were increased demand from the aerospace and construction and mining markets. Looking at each of our key global markets, first quarter 2012 sales to the aerospace and defense markets were $436 million or 32% of sales compared to just under 29% for the full year 2011. Sales to the oil and gas chemical processing industry markets were $277 million or 21% of sales. Sales to the electrical energy market were just under $150 million or 11% of sales. Sales to the medical market were approximately $60 million or 4% of sales.

In addition, we are seeing strong growth in demand from the construction and mining markets, with sales of approximately $105 million in the first quarter or nearly 8% of sales. Finally, first quarter direct international sales were approximately $510 million or nearly 38% of sales compared to 35% for the full year 2011. As a result of continued strong growth in demand from these key global markets and the addition of high-performance forge and cast components, sales of our high-value differentiated products increased to 80% of total ATI sales in the first quarter 2012 compared to 72% in the first quarter of 2011 and 78% for the full year of 2011.

Looking at performance by segment. In our High Performance Metals segment, first quarter sales increased to $581 million, a 46% increase compared to the first quarter 2011, and 11% higher than the fourth quarter of 2011. Segment operating profit increased to $104 million or just under 18% of sales.

In addition, the addition of ATI Ladish was accretive to the first quarter 2012 earnings per share. I'm pleased with the progress being made so far, in achieving the opportunities and synergies from adding the capabilities of ATI Ladish. Comments from our OEM customers regarding ATI's unique integrated supply chain capabilities have been positive. We continue to see significant new opportunities in our key global markets as a result of these integrated capabilities. On a pro forma basis, sales of our high-performance forged and cast components increased 26% compared to the first quarter 2011.

First quarter 2012 High Performance Metals segment operating profit was negatively impacted by approximately $6 million in higher raw material costs, primarily nickel, which did not align with the raw material surcharges due to the length of the production cycle and the rapid decline of nickel prices in the latter half of 2011. We do not expect this issue to have a significant negative impact in the second quarter 2012. Demand for our exotic alloys was weaker than expected as the nuclear energy market balances supply demand dynamics with the shutdown of reactors in Japan, refueling cycles for operating reactors and the timing of construction of new reactors being built in several areas of the world.

In our Flat-Rolled Products segment, while first quarter 2012 sales and operating profit declined compared to the first quarter of 2011 due to lower raw material surcharges, lower volumes for most products and lower base prices for standard stainless products, sales increased 5% and operating profit more than doubled compared to the fourth quarter 2011. The significant operating profit improvement from the fourth quarter of 2011 to the first quarter of 2012 was due primarily to a 29% increase in shipments of our standard stainless products as demand in base prices from the U.S. GDP-sensitive markets improved moderately. Sales of our flat-rolled high-value products continue to benefit from strong demand from the aerospace and oil and gas markets. Shipments of our nickel-based alloys sheet and plate were strong to the oil and gas market due to large projects. Shipments from many of these projects were completed in the first quarter of 2012, and we expect orders later in the second quarter from follow-on projects with related shipments to benefit in the second half of 2012.

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