ATI Inc. (ATI) Earnings & Analysis

Latest quarter

ATI reported second-quarter revenue of $1.3 billion, above the $1.2 billion consensus, and adjusted earnings per share of $1.23, above the $1.03 consensus. Revenue rose 10.6% from a year earlier, while diluted earnings per share increased to $1.09 from $0.70.

The filing attributed the sales increase primarily to higher pricing and demand in aerospace and defense, particularly for commercial jet engine and naval nuclear defense products. Aerospace and defense sales rose 13% to $862.0 million in the quarter. HPMC sales increased 5%, while AA&S sales rose 17%, according to the filing.

ATI reported gross margin of 24.6%, compared with 21.3% a year earlier. The filing said AA&S segment EBITDA included a $9.9 million gain from the sale of a previously closed facility; excluding that and a prior-year tax-credit benefit, it attributed the segment’s margin increase primarily to pricing and product mix. Free cash flow was $68.8 million, compared with $89.5 million a year earlier.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

CEO Kim Fields said ATI’s backlog ended the quarter at $4.4 billion, up 18% from a year earlier, and increasingly reflected long-term agreements and strategic programs. In response to a question about lead times, she said ATI expected about 70% of the backlog to convert into revenue over the next 12 months. Fields said lead times were about 12 months for nickel alloys, 20 months for premium-quality titanium and above 24 months for isothermal forgings.

Fields attributed AA&S’s performance to changes in its portfolio, pricing and execution. Excluding an asset sale gain, she said the segment generated an underlying EBITDA margin of approximately 22%, compared with 14% a year earlier. CFO Rob Foster said renewed nuclear agreements, defense deliveries and improved hafnium and zirconium pricing supported the segment’s outlook. Fields said ATI was one of three qualified Western producers of high-purity hafnium and zirconium for aerospace and nuclear energy applications.

For HPMC, Fields said customer qualification timing at the new Mexico facility and titanium electron-beam furnace shifted shipments into future periods. Asked about the impact, she estimated that around $30 to $40 million of revenue moved from the first half into the second half. Foster said renewed jet engine materials contracts were providing improved pricing and mix, and that deliveries were expected to build through the second half.

Fields said ATI was increasing output from existing assets and investing in capacity tied to customer demand. She said the nickel remelt expansion remained on schedule, with a new furnace expected online by the end of 2027. On the call, Foster said third-quarter profit improvement would be driven by AA&S pricing and mix, particularly in aerospace and defense.

Asked about cash conversion, Foster said some late fourth-quarter shipments would remain in receivables and ATI planned additional inventory for early 2027. He declined to provide updated 2027 guidance on the call.

Guidance

ATI raised its full-year outlook and now expects adjusted EBITDA of $1.1 billion to $1.2 billion and adjusted earnings per share of $4.90 to $5.18. The company also raised its adjusted free cash flow outlook to $550.0 million to $600.0 million. CFO Rob Foster said the increase in the outlook was primarily supported by AA&S pricing, mix and defense performance.