What happened
Shares of Allegheny Technologies (ATI 0.61%) rose more than 11% today after the company released second-quarter 2018 earnings. The results demonstrate that the business is firmly on track in ongoing efforts to return to profitable growth. Revenue, earnings, and cash flow were all up healthy amounts compared to the year-ago period.
In fact, the company's high-performance materials and components segment is growing faster than expected, thanks in no small part to aerospace and defense products. Management noted that next-generation jet engine product sales grew 39% from the year-ago period, which helped to lift the segment's operating margin to 16.5%.
As of 1:25 p.m. EDT, the stock had settled to an 8.5% gain, and the share price is threatening levels last witnessed in mid-2015.
Image source: Getty Images.
So what
Allegheny Technologies has made difficult decisions in recent years to strengthen the long-term viability of its two business segments. That included writing off low-margin products and manufacturing facilities while focusing on high performance, high-margin products. The strategy has shown signs of working in each of the last several quarters, and the second-quarter 2018 results give investors confidence in management's guidance for a strong second half of the year.
Here's how the results in the first half of 2018 compare to the same period of 2017:
|
Metric |
First Half 2018 |
First Half 2017 |
Year-Over-Year Change |
|---|---|---|---|
|
Revenue |
$1.98 billion |
$1.75 billion |
13.9% |
|
Segment operating profit |
$220.4 million |
$140.8 million |
56.5% |
|
Segment operating margin |
11.1% |
8.1% |
37% |
|
Net income |
$136.1 million |
$34.5 million |
294% |
|
Operating cash flow |
$35.0 million |
($85.5 million) |
N/A |
Source: Press release.
Management expects to generate $150 million in free cash flow this year, although that will shrink by $40 million once pension contributions are factored in. Then again, with operating loss carryforward allowing the business to not pay any state or federal income taxes in 2018, making up ground for employee pensions is a wise move for Allegheny Technologies. All considered, there's no denying the company is delivering on its long-stated goals of achieving profitable growth.
Now what
The first half of 2018 was about as good as investors could have hoped for. That said, investors are still awaiting a decision by the federal government of the United States on whether or not production from an important manufacturing facility in Indonesia will be exempt from tariffs. If not, then the prices for products from the facility would increase 25%. That could take a little wind out of the sails of Allegheny Technologies, although the business is certainly making progress to find stable long-term footing.
