ATI (ATI) Q4 2018 earnings summary

Executive summary

• FY18 sales rose 15% to $4.05B, the highest since 2014; net income attributable to ATI was $222.4M, marking its first profitable year from continuing operations since 2012.

• Segment operating profit increased 46% to $413.2M as aerospace demand lifted HPMC and FRP returned stronger profits; management focused on execution, productivity and balance-sheet improvement.

Financial highlights

• FY18 gross profit was $630.3M, up 27% YoY; gross margin was 15.6%, versus 14.1% in 2017.

• Operating income was $362.1M; income before taxes was $247.7M, versus a $86.5M loss in 2017.

• Net income attributable to ATI was $222.4M and diluted EPS was $1.61, versus a $91.9M loss and $(0.83) diluted EPS in 2017.

• Adjusted net income attributable to ATI was $208M, or $1.51 per diluted share, excluding the $15.9M JV deconsolidation gain, among other adjustments.

• Q4 sales were $1,037.9M; gross profit was $147.6M, net income attributable to ATI was $41.1M and diluted EPS was $0.30.

Outlook and guidance

• Next-generation engines are expected to drive jet-engine sales at approximately twice market levels from 2018–22; next-generation aerospace products support HPMC growth.

• Backlog was $2.2B at year-end; 85% of confirmed orders were expected to be filled in 2019.

• Carbon-steel hot-rolling conversion volumes for NLMK USA were expected to ramp through 2019, supporting HRPF utilization.

• Strategic growth opportunities are expected to be internally funded within annual depreciation and amortization; the leverage target is 2x debt-to-EBITDA early in the next decade.

• Expected U.S. qualified pension contributions were approximately $145M annually in 2019 and 2020, then approximately $100M annually for the following few years.