Allegheny Technologies Incorporated Tuesday commented that business and operating conditions in its flat rolled products business remain challenging and demand from the oil and gas market further weakened. Due primarily to the effects of rapid declines in current and projected raw material values, particularly for nickel that is near decade-low exchange-determined prices, ATI also expects to report the following items in its third quarter results:
- A LIFO inventory valuation benefit of approximately $76 million, pretax;
- An offsetting $76 million pretax non-cash charge for Net Realizable Value (NRV) inventory reserves, which are required to offset ATI’s aggregate net debit LIFO inventory balance that exceeds current inventory replacement cost;
- A non-cash charge for income tax valuation allowances of approximately $65 million, net of tax, as a result of a three year cumulative loss from U.S. operations.
For the third quarter, ATI expects to report a net loss attributable to ATI of $142 to $148 million, or $(1.32) to $(1.38) per share. Excluding the non-cash NRV inventory reserve and income tax valuation charges, ATI’s third quarter net loss attributable to ATI is expected to be $29 to $34 million, or $(0.27) to $(0.32) per share.
ATI’s third quarter performance continued to be pressured by the ATI Flat Rolled Products segment. Business conditions in this segment remained challenging.
Stainless steel demand was soft mainly due to unusually high domestic inventory levels that resulted from the first-half 2015 surge of low-priced imports, primarily from China, and generally weak demand which is affected by falling raw material surcharges. Demand from the oil & gas market continued to deteriorate during the quarter. In addition, ATI Flat Rolled Products issued a lockout notice, effective August 15, 2015, to more than 2,000 employees at various locations, due to lack of progress in ongoing contract negotiations with the United Steelworkers (USW). The facilities are being operated by salaried and temporary workers. After an initial drop in asset utilization due to the work stoppage, production rates continue to improve. These facilities are meeting and in many cases exceeding output, quality, and safety expectations.
In the High Performance Materials and Components segment, weakened demand from the oil & gas market continued to negatively impact results. Third quarter sales to the aerospace market were lower than the previous quarter due to seasonal demand, primarily in Europe, as well as the rapid decline in the value of raw materials, particularly for nickel.
“We remain confident that our High Performance Materials and Components segment operating performance will significantly improve in 2016. Our production schedules from our aerospace customers show demand improvement for our next-generation nickel-based alloys and titanium-based alloys and our precision forgings, castings, and components,” said Rich Harshman, Chairman, President and CEO.
“In our Flat Rolled Products segment, as reported last week, repair of the Hot-Rolling and Processing Facility’s Rotary Crop Shear was successfully completed on schedule. Our flat rolled products facilities are operating, mostly at pre-work stoppage levels, and asset utilization continues to improve. We are committed to reaching a fair and more competitive labor agreement with the USW. Our goal is to have the cost structure and enhanced product mix that enables ATI Flat Rolled Products to be a competitive business now and in the future.”