ATI (ATI) Q4 2019 earnings summary

Executive summary

• 2019 sales rose 2% to $4.12B; both segments were profitable, with aerospace and defense growth offset by weaker standard stainless demand and lower FRP profit.

• Strong cash generation and asset sales supported debt reduction and liquidity; adjusted free cash flow was $456.8M, and year-end cash was $490.8M.

Financial highlights

• Gross profit increased 1% to $637.8M; operating income was $366.1M versus $362.1M in 2018.

• Net income attributable to ATI was $257.6M, or $1.85 diluted EPS, versus $222.4M and $1.61 in 2018; adjusted net income was $165M, or $1.21 per diluted share.

• Q4 sales were $1,018.6M; net income attributable to ATI was $56.5M and diluted EPS was $0.41.

• 2019 results included $89.8M net pretax asset-sale gains, a $21.6M debt extinguishment charge, $4.5M restructuring charge, $11.4M JV impairment, and a $41.9M discrete tax benefit.

Outlook and guidance

• Management expected aerospace and defense demand, long-term agreements, powder alloys, isothermal forging and additive manufacturing to support HPMC growth over the next several years.

• Approximately 80% of year-end confirmed orders were expected to ship in 2020; 81% of backlog represented obligations due within 12 months.

• Expected 2020 U.S. qualified pension contributions were ~$130M; average annual contributions were expected to be ~$85M in following years.

• Following the deferred-tax valuation allowance release, the expected future tax rate was 23–25%; U.S. cash taxes were expected to remain minimal for the next few years due to NOL carryforwards.

• Restructuring was expected to generate ~$8M annual savings once implemented, with ~$4M expected in 2020.