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Even Titanium Melts in a Recessionary Blaze

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Superman may have been strong enough to bend steel, but it takes a monster to crush titanium. Such a monster has reared its fearsome head, and its name is global recession.

For titanium manufacturers like RTI International Metals (NYSE: RTI  ) , though, business was already melting before the aptly named Fall of 2008. Last July, I reported an earnings miss sparked by delays in Boeing's (NYSE: BA  ) 787 Dreamliner program and softness in product pricing. Fast-forward to 2009, and we find RTI International Metals actually beating estimates despite an 84% reduction in net earnings over the prior year.

Boeing continues to injure the company with these Dreamliner delays, making it difficult to maintain efficient operations at two of RTI International Metals' fabrication facilities. Meanwhile, RTI International Metals has not been immune to the sharp drop in base metal prices that has blasted miners like Rio Tinto (NYSE: RTP  ) . Cheaper nickel, used extensively in titanium alloys, contributed to nearly a 20% drop in realized prices for the company's titanium unit. Total shipments for that unit also declined by 25% to 3 million pounds.

The recession monster has not spared RTI International Metals' competitors. Allegheny Technologies (NYSE: ATI  ) reported roughly a 25% decline in fourth-quarter earnings, while an analyst warned of blemishes on the company's balance sheet. That same analyst has lowered earnings expectations for Titanium Metals (NYSE: TIE  ) , forecasting weak demand through 2010 mounting pressures to cut capacity. We've already seen deep production cuts within related metal products sectors. U.S. Steel (NYSE: X  ) is operating below 45% of capacity, while Century Aluminum (Nasdaq: CENX  ) recently added enormous share dilution to a spate of mill closures. Given the challenges, I can't see how titanium producers can avoid further production cuts of their own.

What's the titanium lining?
While acknowledging significant challenges, RTI International Metals CEO Dawne Hickton expects to sell 10 million-12 million pounds of titanium products in 2009 while maintaining positive net earnings for the full year. Furthermore, the company's balance sheet does appear solid, with more cash than debt, an undrawn credit facility of $200 million, and only $1.4 million in debt payments coming due in 2009. With those considerations in mind, and following the more than 75% collapse in shares from the 52-week high, RTI International Metals is worth keeping an eye on from a value-investing perspective.

Further Foolishness:

RTI International Metals has received a rating of 4 stars out of 5 from the community of investors at Motley Fool CAPS. With fewer than 300 of the 125,000-plus members now rating the stock, however, your help is needed to introduce your fellow Fools to this company with the strength of titanium. If you haven't joined CAPS, what are you waiting for?

Fool contributor Christopher Barker can bend titanium with his bare hands, provided it's rolled into a thin foil. He can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He owns no shares in the companies mentioned. Titanium Metals is a Motley Fool Stock Advisor pick. Try any of our Foolish newsletters today, free for 30 days.

The Motley Fool's disclosure policy slays recessionary monsters.

Read/Post Comments (2) | Recommend This Article (14)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 06, 2009, at 3:27 PM, dividendgrowth wrote:

    WTF needs titanium if nobody buys airplanes anymore?

  • Report this Comment On April 02, 2009, at 11:50 PM, robpotter wrote:

    Innovations in refining titanium metal will lead to dramatically lower raw material costs in the coming decade. If titanium falls in price, the high strength to weight ratio compared to steel and aluminum and resistance to fatigue and corrosion will expand breadth of markets in airplanes, automotive, bicycles, watches, etc.

    As background, one IL-based startup (ITP) wil pilot plant partly supported with state grant has developed Armstrong process an advance in titanium refinement over the 50+ year Kroll process. ITP was acquired in July 2008 by Cristal Global Ltd. that owned by private companies in Saudia Arabia and Kuwait. Others in universities are researching Ti refinement as well. The players who refine the TiO2 into powder and forging that into blocks of Ti alloys may change, but the rollers, cutters, and welders will likely the same.

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