Release Date: October 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- ATI Inc (ATI, Financial) reported an increase in adjusted EBITDA to approximately $186 million, up from $183 million in Q2.
- Segment adjusted EBITDA margins met or exceeded expectations, with HPMC showing over 200 basis points of sequential improvement.
- Consolidated EBITDA margins increased by 100 basis points, reflecting improvements in price, mix, and operational cost reductions.
- The A&D mix remains greater than 60%, with a stable backlog and new business bookings across segments.
- ATI Inc (ATI) continues to invest in increasing melt capacity, reducing bottlenecks, and improving mix and pricing, showcasing momentum in key areas.
Negative Points
- Adjusted EBITDA was below the guided range of $189 to $199 million, and adjusted earnings per share fell short of the guided range.
- Supply chain uncertainties and operational challenges led to a shortfall in financial guidance.
- Market volatility and operational performance issues exceeded expectations, impacting results.
- The Boeing work stoppage and related supply chain disruptions affected demand for commercial airframe materials.
- Operational challenges, such as a design flaw in the HPMC nickel melt shop and a vacuum anneal furnace outage, created bottlenecks and inefficiencies.
Q & A Highlights
Q: Can you elaborate on how ATI plans to recover from the unplanned outages and if these will impact 2025 results?
A: Don P Newman, Executive Vice President and CFO, explained that the vacuum anneal outage should not create a headwind into 2025. The Boeing work stoppage is expected to resolve by late this quarter or early 2025, with related demand getting back on track. However, ATI is not increasing its 2025 targets based on this assumption.
Q: How does ATI's dependency on engine manufacturers compare to airframers, and what are the differences in demand signals?
A: Kimberly A Fields, President and CEO, noted that engine demand remains steady, with ongoing support for MRO activities and growth in jet engine sales. The company is seeing a shift in demand from airframers due to build rate alignments, but engine demand is expected to continue growing.
Q: Can you discuss the impact of MRO demand on offsetting airframe pressures and the margin differences between these markets?
A: Fields highlighted that MRO demand is strong, with OEMs protecting the supply chain. While engine business is more accretive, both airframe and engine segments are positive from a margin standpoint. Don P Newman added that defense growth also helps offset airframe headwinds.
Q: What are the expectations for Q4 EBITDA given the ongoing challenges?
A: Newman stated that Q4 EBITDA is expected to be in the range of $181 million to $191 million. While some Q3 challenges will persist, such as the titanium demand reduction, other issues like hurricane-related shipping delays are not expected to repeat. The guidance reflects a conservative approach due to ongoing market volatility.
Q: How is ATI managing the backlog and addressing pushouts or cancellations?
A: Fields mentioned that the backlog remains stable at around $4 billion, with titanium for airframes experiencing the most significant pushouts and cancellations. The company is working with customers to realign orders and expects stable shipments in Q4.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
