Specialty metals producer Allegheny Technologies
Still, Wednesday's earnings release, packed with impressive-sounding figures, was slightly promotional for my taste. There's a lot of useful information there, but the less favorable year-over-year comparisons require unsurfacing.
Yes, sales and profits hit records. Operating margins also improved, though only in one of ATI's three segments. Plunging scrap titanium prices weighed on the profitability of the high-performance metals segment, whose slight margin deterioration was not addressed in the text of the release. The segment contributed 77% of operating profit in the fourth quarter, so it's a critical piece of the business.
Allegheny obviously has no control over volatile commodity prices. That's why there are several metrics that are arguably more useful to watch than operating margins. For one, there's working capital as a percentage of sales. This shows how good the organization is at freeing up cash in the normal course of business. Using the firm's calculations, this liquidity measure deteriorated slightly in 2007.
Return on capital employed is another important figure to keep an eye on. This measure captures not only profits ("return"), but also management's capital allocation decisions ("capital employed"). It's one thing to juice sales and earnings growth by overspending, and quite another to grow by reinvesting in a business only up to the point that intrinsic value is maximized.
While recently signed long-term agreements with Boeing