PITTSBURGH--(BUSINESS WIRE)--Allegheny Technologies Incorporated (NYSE: ATI) reported second quarter 2016 sales of $811 million and a net loss attributable to ATI of $19 million, or $(0.18) per share. ATI’s second quarter 2016 results reflect an above-normal income tax rate benefit of 63%, decreasing ATI’s net loss by $11 million, or $0.11 per share, compared to the tax benefit that would apply at a standard U.S. federal 35% income tax rate. Results improved significantly from the first quarter 2016, as the operations of ATI Flat Rolled Products returned to more normal operating levels, and costs related to the recent work stoppage declined.

“Commercial aerospace market sales increased another 3% in the second quarter 2016 compared to the first quarter 2016,” said Rich Harshman, Chairman, President and Chief Executive Officer. “Sales to the aerospace and defense market continued to drive ATI’s results, representing over 50% of total 2016 sales. Our commercial aerospace market growth is being driven in large part by the growth of ATI’s next-generation mill products, forgings, and castings.”

• ATI’s sales to key global differentiated markets were 82% of ATI sales for the six months ended June 30, 2016:
  • Sales to the aerospace and defense markets were $805 million and represented 51% of ATI sales: 28% jet engine, 16% airframe, 7% government aero/defense.
  • Sales to the electrical energy market were $138 million and represented 9% of ATI sales.
  • Sales to the oil & gas/chemical and hydrocarbon processing industry market were $131 million and represented 8% of ATI sales: 5% oil & gas, 3% chemical and hydrocarbon processing industry.
  • Sales to the automotive market were $109 million and represented 7% of ATI sales.
  • Sales to the medical market were $104 million and represented 7% of ATI sales.

• Direct international sales represented 40% of ATI’s 2016 sales.
• Sales of high-value products were 84% of ATI second quarter 2016 sales.

“Second quarter 2016 High Performance Materials & Components (HPMC) segment results showed sequential improvement, with sales of $498 million and segment operating profit increasing 33% to $39 million, or 8% of segment sales. Demand from the aerospace and defense market continues to drive HPMC results, with jet engine and airframe products representing 42% and 20%, respectively, of total second quarter 2016 segment sales. Sales to the medical market increased 8% and sales to the electrical energy market increased 4%, both compared to the first quarter 2016. Market conditions remain challenged in other HPMC segment markets, with demand from the oil & gas and construction and mining equipment markets at lower levels. We recognized an additional $1 million severance charge in the second quarter 2016, which is excluded from segment results, as we continue to streamline our HPMC operations. Segment results were negatively impacted by $9 million of high production costs due to low operating rates at our Rowley, UT titanium sponge facility.

“Flat Rolled Products (FRP) segment sales in the second quarter 2016 were $312 million, an 18% increase compared to the first quarter 2016. Segment operating loss decreased more than 70%, to $32 million, compared to a loss of $110 million in the first quarter 2016. Improved operating performance and lower non-recurring costs were the primary drivers of the improved quarterly results, with higher shipments across all major product categories. Segment results also reflect the continued challenging market conditions, particularly in the oil & gas/chemical and hydrocarbon processing markets.

“Second quarter 2016 FRP segment results include approximately $22 million in non-recurring operating costs related to higher-cost material produced prior to the work stoppage, and higher conversion costs during the return to more normal operating levels. FRP results benefitted during the second quarter 2016 from favorable foreign currency adjustments on fair value hedges. During the quarter, we completed the previously-announced idling of our GOES operations. The idling of the standard/commodity stainless melt shop and finishing operations at our Flat Rolled Products’ Midland, PA facility was completed in the first quarter 2016.

“During the second quarter 2016, we proactively addressed upcoming pension funding requirements by issuing $288 million of six-year convertible debt. We made a $115 million contribution to our U.S. defined benefit pension plan in July 2016, and we expect to use additional proceeds from this debt issuance to meet future pension funding requirements. To support our restructuring actions and operational needs, we borrowed $100 million through an 18 month term loan under our asset based lending (ABL) facility during the second quarter. Total debt to total capitalization was 48.7% at the end of the second quarter 2016 compared to 42.0% at year-end 2015.

“At June 30, 2016, cash on hand was $322 million and available additional liquidity under our ABL was approximately $325 million. Cash provided by operating activities was $28 million in the second quarter 2016. Managed working capital increased $12 million in the second quarter 2016, but decreased as a percentage of annualized sales due to increasing business volumes. Capital expenditures were $76 million in the second quarter 2016 and $145 million for the first six months of 2016, over half of which related to the completion of the Hot-Rolling and Processing Facility (HRPF). We continue to estimate that full year 2016 capital expenditures will be less than $240 million. Beyond 2016 we expect capital expenditures to be less than $100 million annually for the next several years.”

Strategy and Outlook

“As previously stated, ATI’s results in 2016 will reflect two differently situated businesses. Our HPMC segment is realizing the benefits of the growth phase of next-generation commercial airplanes and jet engines. We expect operating levels throughout our HPMC operations to continue to increase as we progress through 2016, driven primarily by the commercial aerospace market. We expect HPMC segment operating profit as a percentage of sales to return to low double-digit levels by the second half of the year.

ATI will conduct a conference call with investors and analysts on Tuesday, July 26, 2016, at 8:30 a.m. ET to discuss the financial results. The conference call will be broadcast, and accompanying presentation slides will be available, atwww.ATImetals.com. To access the broadcast, click on “Conference Call”. Replay of the conference call will be available on the ATI website.