What's in Store for Allegheny (ATI) This Earnings Season?

Allegheny Technologies Incorporated ATI is scheduled to release third-quarter 2017 results before the market opens on Oct 24.

The company reported net earnings of 9 cents per share in the previous quarter, exceeding the Zacks Consensus Estimate of 7 cents. Revenues for the quarter rose 8.6% year over year to $880.2 million, surpassing the Zacks Consensus Estimate of $876.1 million.

Alleghany beat the Zacks Consensus Estimate in three of the trailing four quarters, while missing in one, with an average positive surprise of 11.7%.

Let’s see how things have shaped up for the forthcoming announcement.

Allegheny Technologies Incorporated Price and EPS Surprise

 

Allegheny Technologies Incorporated Price and EPS Surprise | Allegheny Technologies Incorporated Quote

Factors at Play

Alleghany recently provided updates on third-quarter 2017 results. The company announced a non-cash net of tax charge of $114 million, or $1.05 per share, for goodwill impairment related to the Cast Products business.

Allegheny anticipates third-quarter results to be in line with its July outlook excluding the impairment charge. A year-over-year improvement in High Performance Materials and Components (HPMC) segment is expected to continue over the next few years, courtesy of the ongoing next-generation aerospace ramp.

The company’s Flat Rolled Products segment results are expected to be adversely impacted by a sharp decline in raw material prices, mainly ferrochrome and nickel. This is expected to reduce profit margins due to out-of-phase raw material surcharges, resulting in a loss in this segment.

Sales in the third quarter are expected to be in the range of $865-$875 million with a reported loss in the range of $1.11-$1.14 per share, including the $1.05 per share charge for the goodwill impairment. Excluding this charge, the reported loss is expected in the range of 6 cents-9 cents per share.

Nevertheless, Allegheny is likely to benefit from its diversified global growth markets as well as cost reduction and restructuring measures. The company is seeing healthy demand from aerospace OEMs which should spur growth.

Allegheny expects its HPMC unit to maintain robust performance in the second half of 2017, especially in the commercial aerospace. Further, the company expects the unit to continue to deliver a low-double-digit level of operating margin.

Allegheny’s shares moved up 35.4% over a year outperforming the industry’s 28.6% gain.

 

 

Earnings Whisper

Our proven model does not conclusively show that Allegheny is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here, as you will see below:

Zacks ESP: The Earnings ESP for Allegheny is -94.44%. This is because the Most Accurate estimate is at a loss of 4 cents while the Zacks Consensus Estimate is pegged at a loss of 2 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Although Allegheny’s Zacks Rank #3 increases the predictive power of ESP, its negative ESP makes surprise prediction difficult.

Note that Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement, especially when the company is witnessing negative estimate revisions.

Stocks to Consider

Here are some companies in the basic materials space that you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:

FMC Corporation FMC has an Earnings ESP of +0.88% and sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Westlake Chemical Corporation WLK has an Earnings ESP of +5.14% and flaunts a Zacks Rank #1.

Ingevity Corporation NGVT has an Earnings ESP of +2.94% and a Zacks Rank #1.

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