Here's Why Allegheny Technologies Incorporated Rose as Much as 25% This Morning

By Maxx Chatsko Markets Fool.com

Image source: Getty Images.

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What happened

Specialty metal supplier Allegheny Technologies Incorporated (NYSE: ATI) shot out of the gate this morning after announcing fourth-quarter and full-year 2016 financial results.

So what

You can view the press release for the full details, but here are the important metrics:

Metric

2016

2015

% Change

Revenue

$3.13 billion

$3.72 billion

(15.9%)

Gross profits

$162.5 million

$60.3 million

169%

Restructuring charges

$527.2 million

$64.3 million

790%

Impairment of goodwill

N/A

$126.6 million

N/A

EPS

($5.97)

($3.53)

N/A

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Data source: Allegheny Technologies Incorporated.

At first glance, a net loss per share of $5.97 certainly doesn't look great, and the year-over-year results appear mixed at best, but context is needed. While Allegheny Technologies has taken it on the chin in recent years, management is executing on its plan to increase profitability and strengthen its balance sheet. Most of the net loss in the last two years has been attributed to restructuring and impairment charges. And in fact, the company reported positive EPS of $0.09 in the final quarter of 2016 -- even with a restructuring charge of $28.6 million, which was equivalent to $0.26 per share.

The outlook for 2017 is cautious, although revenue for its high-performance materials and components segment -- its fastest-growing and most promising -- is expected to increase by 10%, and operating profits should be in the low teens. Capital expenditures are expected to be $125 million, then fall to $100 million for several years after this year. Management also expects to make a $135 million contribution to its pension fund and repay a $100 million loan that comes due in 2017, which should be aided by the decision last December to suspend the quarterly dividend -- a move that will save $35 million annually.

Now what

Allegheny Technologies remains on track to regain its footing and execute on management's long-term vision for growth and profitability. A focus on high-margin specialty alloys to the defense and aerospace industries will certainly help, as will the company's ability to provide alloy powders for 3D metal printing operations. Challenges remain for the next several quarters, but this was another quarter in which the materials supplier took a step in the right direction.

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Maxx Chatsko has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.