- Tools for Investors
- Stock News
- Investing Ideas
- Econ & Policy
- Personal Finance
Richard Safran – The Buckingham Research Group: Listen, I had two questions here which I’ll just try to expand on some of your comments, Rich, and I wanted to first talk about Farnborough. Going through your booth there, I was struck by the fact it was all about alloy parts, but I also note you took down some expectations here for how rapidly you think 425 alloys is going to penetrate the market, and that took up expectations for other alloys like Rene 65. So what I want to know is if you could expand on the opportunity set, how you see this impacting the business, is there a near-term component and long-term component to this?
A Closer Look: Allegheny Technologies Inc Earnings Cheat Sheet>>
Richard J. Harshman – Chairman, President and CEO: Yeah, I think for both of those alloy systems, there is certainly a long-term component. I think on the jet engine side, the alloy development – the 718Plus alloy developed has really been under development for seven to eight years, and that was an ATI developed alloy that that we were targeting for a specific application as our interaction with the engine manufacturers over time recognized that their challenge was going to become much more energy-efficient and required higher operating temperatures. So we began actually seven or eight years ago working on that alloy as part of the metals affordability index proposal which we won in a competition. And so, the development of that alloy is much longer timeframe for the engine application than ATI 425 has been, and I’ll come back to that in a moment. So, the aerospace market as you know, when you enter new products and enter new alloys and new materials, it takes a while to get them qualified because of the critical nature of the application, especially in the jet engine rotating parts. The Rene 65 is really a GE alloy. It’s a proprietary alloy developed by GE. We were honored in terms of them picking us to work with them to develop that into a (raw) product which we have done over the last three or four years, and it’s really focused at a very high level on the same kind of issue in terms of how do you increase the life of the part and the component in a higher operating temperature environment. So, those two alloys are being (specked) and now in the case of 718Plus it’s not only for the next generation and future generation engines, but it’s also for replacement parts and engines that are already in service. So I think that there is a near-term growth opportunity now that we are realizing there, but both of those alloys, in our view, will grow significantly into the future and we’re only really beginning to see the tip of the iceberg and the opportunities of those. ATI 425 alloy from the standpoint of targeting it for airframe applications really just happen beginning from the standpoint of having the initial independent qualification in 2010, and the targeted application is a direct replacement for (6×4) alloy sheet, we believe still is a value proposition for the customers but it becomes a question of timing in terms of how it gets looked at and how it gets implemented in various airframe structures and that’s program specific dependent once you are not specified into that airframe for that application at the time of the design. So, what we’re doing is really working with the airframers now in terms of how can it be introduced and already frozen designs and that takes a little bit longer quite frankly, but we’re working at both on the commercial airframe side, as well as on the rotary aircraft side and we continue work it quite frankly on the defense armor side, and that alloy system has now expanded, quite frankly, into an area that we really hadn’t initially targeted, but as you get to know what the properties and what the value proposition is, we see opportunities for example in fasteners stock with that alloy replacing other titanium, as well as possibly other specialty alloys and we’re working with the OEMs as well as the fastener manufactures to qualify that. It’s always slower than you would like it to be, but quite frankly I think that the future of ATI 425 is still very bright.
Timna Tanners – Bank of America Merrill Lynch: So, I wanted to follow up with my two questions I guess, apply your guidance for the full-year and assume a decline in this third quarter, then you have a pretty sharp ramp in the fourth quarter, and you certainly went to quite a number of projects to expect to winning opportunities. So, I guess my first question is can you talk about – first of all I just want to make sure my assumption is correct about the fourth quarter sharp recovery. But also how much conviction do you have that these projects will actually go ahead on schedule. We have seen delays in the past in some of these end markets. And just wondering if you can give us some more color on your conviction levels for timing?
Richard J. Harshman – Chairman, President and CEO: I do think we certainly have seen delays, especially in some of the desal. We’re more certain today than ever before. Is the only way I think I can put that because of the confidentiality that we have with our customers, but the projects are still there, the need is still there, they’re still funded, they’re at various stages in terms of when you would expect the order which is why we kind of give a broader swath in terms of third quarter order and we began producing and probably don’t begin shipping until the fourth quarter. So, I think the macro-environment certainly still presents a risk in terms of further deterioration globally could the customer decide to wait longer of course that that risk is always there. But I think with the passage of time here through one or two of these projects being now almost a year later than was originally intended. I think we are much closer and more confident than ever before. Is it riskless? No, of course it’s not riskless, but I think that we have a high-level of confidence. I think those factors helped drive the fundamental view that the fourth quarter is improved compared to the third quarter and the third quarter is the trough. I also think that as we look at the other end markets in terms of the supply chain and as you continue to look and listen to the OEMs in terms of their confidence in the rate ramp and the expectation now that by the end of the year the 787, which we heard today from Boeing will be at five a month, and the high degree of confidence that they have in their supply chain and their production process that that will drive not only the demand for specialty metals, not just titanium for airframe applications but also for the engine side, and probably take away some of the – yeah, the macroeconomic concerns that I think are certainly in the back, if not the front of everybody’s mind. But in the aerospace supply chain, I also think you have the focus on gaining confidence in the rate ramp, and I think that with each passing month and each progress that the OEM is make achieving their announced rate ramp, the confidence becomes greater and the need for the product and the materials become greater because the supply chain inventory levels are pretty much in balance.
Timna Tanners – Bank of America Merrill Lynch: Okay, and then a quick one if I could on – how much of your aerospace exposure is aftermarket and how much is defense?
Richard J. Harshman – Chairman, President and CEO: Generally speaking when we look at both forgings and we look at the mill products that are targeted for the aerospace market, it’s generally about 25% to 30% is aftermarket spares related as opposed to newbuild related.
Timna Tanners – Bank of America Merrill Lynch: And defense?
Richard J. Harshman – Chairman, President and CEO: On the aftermarket on defense?
Timna Tanners – Bank of America Merrill Lynch: No, just defense in general, sorry?
Richard J. Harshman – Chairman, President and CEO: Defense in general for us is no more than 5% of total sales and most of it is in – a large part of it is in the naval nuclear program which is really dependent upon the refuel schedule as well as the new build schedule and then you have the jet engine – the new build of jet engine for fighters as well as the aftermarket for those parts.
Don't miss one of the biggest bull markets in history! Covers Gold, Silver, Gold & Silver stocks, and miners.
There's always a bull market in some sector! Find the best opportunities in commodities.