Allegheny Technologies Incorporated reported first quarter 2016 sales of $758 million and a net loss attributable to ATI of $101 million.
ATI’s results reflect the ongoing restructuring and transformation of the Flat Rolled Products (FRP) business, including a previously announced $9 million first quarter 2016 charge for the reduction of approximately one-third of FRP’s salaried workforce through the elimination of over 250 positions.
“ATI sales to the aerospace and defense market increased to 52 percent of total sales in the first quarter 2016 from 41 percent of total sales for the full year 2015,” said Rich Harshman, Chairman, President and Chief Executive Officer. “This market mix change is driven in large part by the growth of ATI’s next-generation mill products, forgings, and castings as well as legacy forgings and castings that are new to ATI, combined with our decision to reduce our production of heavily commoditized stainless sheet and GOES products. As a result of continuing weak demand, ATI sales to the oil & gas/chemical and hydrocarbon processing market were cut in half to 7 percent from 14 percent, using the same comparison period.”
Harshman continued: “Flat Rolled Products segment sales were $265 million, down 6 percent compared to the fourth quarter 2015, and segment operating results were a loss of $110 million, compared to a loss of $120 million in the fourth quarter 2015. Segment results, which exclude $9 million of severance charges, reflect the continued challenging market conditions, primarily impacting commodity stainless and GOES flat-rolled products. In addition to the operating costs and inefficiencies discussed earlier, the first quarter was negatively impacted by higher operating costs as we moved through the process of reducing production levels and then idling our two facilities used in the production of commodity stainless sheet and GOES products. Falling raw material prices into the first quarter of 2016 continued to adversely affect FRP results, as pricing mechanisms that are designed to recover material costs fell faster than the length of the manufacturing cycle. First quarter 2016 FRP segment results also include approximately $7 million of costs associated with contractual obligations in the return-to-work agreement for represented employees, and approximately $14 million in non-recurring operating costs related to the work stoppage and labor agreement transition.
Harshman continued: “Flat Rolled Products segment sales were $265 million, down 6 percent compared to the fourth quarter 2015, and segment operating results were a loss of $110 million, compared to a loss of $120 million in the fourth quarter 2015. Segment results, which exclude $9 million of severance charges, reflect the continued challenging market conditions, primarily impacting commodity stainless and GOES flat-rolled products. In addition to the operating costs and inefficiencies discussed earlier, the first quarter was negatively impacted by higher operating costs as we moved through the process of reducing production levels and then idling our two facilities used in the production of commodity stainless sheet and GOES products. Falling raw material prices into the first quarter of 2016 continued to adversely affect FRP results, as pricing mechanisms that are designed to recover material costs fell faster than the length of the manufacturing cycle. First quarter 2016 FRP segment results also include approximately $7 million of costs associated with contractual obligations in the return-to-work agreement for represented employees, and approximately $14 million in non-recurring operating costs related to the work stoppage and labor agreement transition.
“In the first quarter 2016, we completed the previously-announced idling of the standard/commodity stainless melt shop and finishing operations at our Flat Rolled Products’ Midland, PA facility. The idling of our GOES operations, including the Bagdad, PA facility, will be completed by the end of this month. The future restart of these idled operations depends on future business conditions and ATI’s ability to earn an acceptable return on invested capital on products manufactured at these facilities.
As for an outlook for the rest of the year, Harshman said, “As previously stated, ATI’s results in 2016 will reflect two differently situated businesses. Our HPMC segment is beginning to realize the benefits of the growth phase of next-generation commercial airplanes and jet engines. We expect operating levels throughout our HPMC operations to continue to increase as we progress through 2016, driven primarily by the commercial aerospace market. We expect HPMC segment operating profit as a percentage of sales to return to double-digit levels by the second half of the year.”