Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- ATI Inc (ATI, Financial) reported its highest quarterly sales in nearly a decade, reaching nearly $1.1 billion, reflecting a 10% sequential increase.
- Aerospace and Defense (A&D) sales made up 62% of revenues, putting ATI on track toward its A&D mix target of 65%-plus.
- Adjusted EPS hit $0.60, at the high end of guidance, and adjusted EBITDA was $183 million, exceeding the upper end of guidance.
- New sales commitments surpassing $4 billion were announced, primarily for high-value nickel products for jet engines, supporting financial targets for 2025 and 2027.
- ATI's strategy of diversifying its business and securing long-term contracts is paying off, with strong demand signals from aerospace and defense markets.
Negative Points
- There are concerns about potential impacts on titanium ramp-up due to supply chain issues in the widebody aircraft sector.
- The company is experiencing inefficiencies and higher costs due to the hiring and training of over 500 new employees in the first half of the year.
- Pass-through revenues affected year-over-year revenue growth, creating headwinds of 6% for overall ATI, 2% for HPMC, and 11% for AA&S.
- Industrial markets remain stable but have not shown significant recovery, impacting overall growth potential.
- The free cash flow guidance was not raised despite an increase in EBITDA guidance, reflecting a conservative approach amid potential working capital headwinds.
Q & A Highlights
Q: How does the potential impact of supply chain issues in the widebody aircraft sector affect ATI's titanium ramp-up?
A: Donald Newman, EVP & CFO, explained that while there are some scattered order pushouts, ATI's diversified customer base allows them to fill any open slots quickly. This diversification reduces dependency on any single airframer and supports confidence in their outlook for 2024 and beyond.
Q: Can you discuss the growth trajectory for the engine side of the business following the new business announced at Farnborough?
A: Donald Newman noted strong signals of sustained jet engine demand across all major manufacturers, driven by both new builds and MRO (Maintenance, Repair, and Overhaul) demand. He highlighted that the 777X certification and FAA limitations on 737 build rates are key triggers for potential demand increases.
Q: Is there any concern about inventory levels and the risk of destocking in the aerospace sector?
A: Kimberly Fields, President & CEO, stated that ATI maintains close alignment with customers and has not observed significant destocking. The company is nimble and adjusts to demand changes, with strong MRO demand supporting their engine business.
Q: What are the expectations for non-A&D and medical markets in the second half of the year?
A: Donald Newman indicated that while aero-like markets are expected to see healthy growth, industrial markets remain stable without significant recovery anticipated in the second half. The strong growth guidance is primarily driven by aerospace, defense, and aero-like markets.
Q: How is ATI addressing the increased demand for forgings and capacity expansion?
A: Kimberly Fields mentioned that ATI is working closely with customers like RTX to optimize capacity and plans to double forging output next year. They are also increasing machining and inspection capacities to meet industry demands.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
