Benzinga  Mar 2  Comment 
The risk-reward on specialty metals company Allegheny Technologies Incorporated (NYSE: ATI) is more interesting despite tariff concerns, following the 15 percent pullback from January highs, an analyst at KeyBanc Capital Markets said. The...
Forbes  Mar 1  Comment 
CressCap uses a 5 factor model to automate stock picking
Motley Fool  Jan 24  Comment 
ATI earnings call for the period ending December 31, 2017.
Motley Fool  Dec 23  Comment 
Allegheny Technologies is quietly finding success with its turnaround strategy. Growth and profits could be next.


Allegheny Technologies (NYSE: ATI) makes specialty metal products which meet certain hardness, conductivity, and malleability criteria. Consumers include aerospace and defense businesses as well as automotive and medical firms, including the Boeing Company (BA), the General Electric Company (GE) Aviation Division, and BAE Systems (BAESY). Though ATI does most of its business in the United States, a quarter of revenue is from direct international sales and the company estimates that international markets are responsible for up to 50% of total sales.[1]

In October 2006, ATI announced a 2.5 billion dollar agreement with the Boeing Company (BA) to supply titanium for their commercial aerospace applications. In 2008 Boeing plans to unveil its newest plane, the Dreamliner 787, and Boeing's CEO, Patrick Hassey, believes this to be the largest deal Boeing has struck with any single partner.[2] This key agreement not only provides long-term demand for ATI, but it also solidifies ATI's place as a leading titanium supplier.

As a specialty metals producer, ATI is highly dependent on the prices of raw materials. Because the market price for the company's specific raw materials is volatile, ATI is susceptible to unexpected changes in material expenses. Increasing environmental regulations and cyclical demand for ATI products create additional risks. The condition of the cyclical markets of key clients, such as the aerospace, transportation, and energy industries, plays a significant role in the success of ATI.

Corporate Overview

Over the fiscal year of 2007, ATI sales reached an all-time high of $5.45 billion and net income rose by 30% to $747 million, which comes out to $7.26 dollars per share.[1] Many factors contributed to the record year for ATI, including a 15% increase in titanium shipments to about 41 million pounds as well as $457.1 million dollars in significant upgrades to ATI facilities across the globe.[1] Moreover, for the first time in its history, ATI had more cash than debt. Net debts decreased from 19.3% in 2005 to (4.5%) in 2007.[3]

Error creating thumbnail

Business Segments

Error creating thumbnail
  • Flat-Rolled Products (FRPs) (54% of Revenue; 40% Operating Profit) refer to metallic plate, sheet, or foil products made by passing ingot (semi-processed metal) through pairs of rolls.[4] For ATI, this includes stainless steel, nickel-based alloys, and titanium and titanium-based alloys. These specialty metals are made into those different product forms and different types (i.e. for electrical or tools use).[3] Major consumers of these products include electrical energy companies, chemical processing businesses, food processing industries, and aerospace firms. ATI's FRP sector is composed of ATI Allegheny Ludlum, a 60% share in a Chinese joint venture company known as Shanghai STAL Precision Stainless Steel Company Limited (STAL), and a 50% share in a titanium joint venture called Uniti LLC.[3]
  • High-Performance Metals (HPMs) (38% of Revenue; 58% Operating Profit) refer to processed metals designed for extreme conditions, such as high heat or corrosion resistance in a variety of environments.[5] Final products include conventional titanium, nickel, and cobalt based alloys and more unique alloys of zirconium, halfnium, and niobium. ATI normally ships these metals in long product forms, such as rods, wires, bars, and seamless tubes.[3] Popular markets for their HPMs partially overlap those of the FRP segment and include the aerospace and defense, oil and gas, and medicinal industries.[6] The company's operating units within the HPM segment include ATI Allvac, ATI Allvac Ltd (U.K.) and ATI Wah Chang.
  • Engineered Products (EPs) (8% of Revenue; 2% Operating Profit) refer to various equipment and tools specifically designed for the oil, mining, and metalworking industries. ATI's goods in this sector include tungsten powder, heavy alloys, and carbide cutting instruments.[3] The constituent divisions within the EP segment include ATI Metalworking Products, ATI Portland Forge, ATI Casting Service and ATI Rome Metals.

Trends and Forces

Price volatility of raw materials hurts ATI

ATI operates most of its inventories in a Last-In First-Out (LIFO) system (as opposed to First-In First-Out (FIFO)), so the day-to-day prices of raw materials plays a key role in their expenses.[7] The market for many of their raw materials is highly volatile, making future price stability for ATI's own products unpredictable. Depending on whether raw material costs are rising or declining, LIFO or FIFO may be the efficient financial option.

By using the LIFO system, lower raw material costs in 2006 saved ATI $92.1 million dollars.[7]

Long-term contracts are a double-edged sword for ATI

ATI has entered into a handful of long-term contracts, including many with the US government. On October 16, 2006 Boeing and ATI signed a titanium products supply deal worth $2.5 billion, which goes until 2015.[8] Though certain economic events (such as an increase in costs) make entering into such fixed-price contracts detrimental for ATI, it is highly beneficial to have guaranteed customers when competing in an industry where product pricing is unpredictable.

Market condition of key consumers helps determine ATI profitability

The main consumers of ATI's products--such as the aerospace and defense, energy, and automotive industries--are subject to many economic forces that combine to make demand for their own products cyclical. Economic downturns can reduce consumption of automobiles or airplanes, for example, thereby reducing demand for ATI's goods. However, due to record backlogs in Boeing, Airbus, and their engine manufacturers, the demand for titanium compounds is expected to remain strong.[3] Demand for cars has fallen because of the high oil prices, which reduces the automotive industry's demand for ATI's goods. Other factors that can weaken demand for ATI's metals include currency fluctuations, industrial overcapacity, and the availability and pricing of substitute goods.

Comparison to Competitors

ATI's main competitors within the specialty metals industry include Titanium Metals (TIE), RTI International Metals (RTI), Carpenter Technology (CRS), and the Russian firm VSMPO-AVISMA, which is the world's largest titanium producer by volume. Titanium is a key product for ATI; the company has invested over 800 million dollars to expand current titanium sponge processing plants across the country in the past three years.[9] Moreover, titanium production accounts for just under a fifth of ATI's revenue, the most for any single one of ATI's metals. These companies produce many kinds of metals besides titanium, creating substitute goods for ATI's products. Below is a comparison of relevant operating metrics for each of these businesses for the fiscal year of 2007.

Company Total Rev. 2007 ($ millions) Rev. from Titanium Production 2007 ($ millions) Trailing P/E Forward P/E Operating Margins Profit Margins
Allegheny Technologies $5,453 $925 8.62 8.06 19.63% 12.75%
Titanium Metals (TIE)[10] $1,279 $952 10.85 10.13 26.37% 18.86%
RTI International Metals (RTI)[11] $627 $253 8.89 9.25 22.39% 14.69%
Carpenter Technology (CRS)[12] $1,945 $188 7.28 8.46 16.86% 14.49%
VSMPO-AVISMA[13] $1,003 $839 N/A N/A N/A 20.33%
Industry Averages[14] $932 N/A 26.01 N/A 12.05% N/A

P/E and Margins Data provided by annual reports and Yahoo Finance[14]



  1. 1.0 1.1 1.2 ATI 2007 Annual Report pg. 3-7  
  2. Western Pennsylvania companies make Dreamliner a reality
  3. 3.0 3.1 3.2 3.3 3.4 3.5 ATI 2007 10-K pg. 27-30  
  4. Flat-Rolled Products
  5. TIE: High Performance Metals
  6. Reuters: ATI
  7. 7.0 7.1 ATI 2007 10-K pg. 11-15  
  8. ATI and Boeing sign 2.5 billion dollar deal
  9. ATI 2007 Annual Report pg. 8-10  
  10. TIE 2007 10-K  
  11. RTI 2007 10-K  
  12. CRS 2007 10-K  
  13. VSMPO-AVISMA 2007 Annual Report  
  14. 14.0 14.1 Yahoo Finance Metrics
Wikinvest © 2006, 2007, 2008, 2009, 2010, 2011, 2012. Use of this site is subject to express Terms of Service, Privacy Policy, and Disclaimer. By continuing past this page, you agree to abide by these terms. Any information provided by Wikinvest, including but not limited to company data, competitors, business analysis, market share, sales revenues and other operating metrics, earnings call analysis, conference call transcripts, industry information, or price targets should not be construed as research, trading tips or recommendations, or investment advice and is provided with no warrants as to its accuracy. Stock market data, including US and International equity symbols, stock quotes, share prices, earnings ratios, and other fundamental data is provided by data partners. Stock market quotes delayed at least 15 minutes for NASDAQ, 20 mins for NYSE and AMEX. Market data by Xignite. See data providers for more details. Company names, products, services and branding cited herein may be trademarks or registered trademarks of their respective owners. The use of trademarks or service marks of another is not a representation that the other is affiliated with, sponsors, is sponsored by, endorses, or is endorsed by Wikinvest.
Powered by MediaWiki