Leeham News and Analysis
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Leeham News and Analysis
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Immense Commercial Airframe Shipments Growth Supercharges ATI’s Q3 Earnings
By Chris Sloan
Nov. 1, 2023, © Leeham News: Aerospace and Defense (A&D) revenue increased to a company record of 61% of airframe material maker ATI’s Q3 sales, up from 51% a year ago – firmly on its way to the company’s stated 65% target.
ATI’s titanium product for commercial airframe shipments took the supplier’s checkered flag with a 25% sequential and 55% YoY growth, driven by both single and dual-aisle airframe production rate increases. “Shipments of airframe materials surpassed $200m in the third quarter. That’s up more than 50% from the third quarter last year. It’s a new record for us, surpassing our prior Q2 2019 high watermark,” boasted ATI Bob Wetherbee, Board, Chair and CEO.
Titanium has proven its metal in justifying the restart of four furnaces at its Oregon facility to expand capacity by 35% over its 2022 baseline. ATI projects this full run rate will command an additional $50m in titanium revenue per year.
“In just 12 months, total ATI titanium sales are up approximately 75%. It’s an incredible ramp, with strong demand and customer commitments. In some cases, we’re the only game in town. Stronger bottom-line results are clearly ahead for us. It’s a pretty exciting time to be part of ATI,” said Wetherbee.
Commercial Fuselages Buoys Both Business Units
Commercial airframe shipment sales generated 85% of total High Performance Materials & Components (HPMC) segment sales in the third quarter 2023 – improving 18% YoY. HPMC third quarter 2023 sales increased $12m, or two percent, compared to the second quarter 2023. “HPMC results beat our expectations. Sales were in line, with impressive margin performance driving overall earnings upside,” said a J.P Morgan First Take.
| The Advanced Alloys & Solutions (AA&S) business unit’s third-quarter 2023 sales slipped by $33m and $88m compared to 2Q2023 and YoY, respectively. ATI reports that a sales increase of seven percent in commercial sales offset recessionary softness in general industrial markets such as energy, and from planned outages.
“AA&S performance more mixed, as expected. The non-A&D AA&S end-markets have been reporting softer results the past couple of quarters and this continued in Q3, though A&D growth left AA&S sales nearly in line with our forecast,” said the J.P. Morgan report. Wide-Body WowsATI reported rapidly ascendant strength in demand for raw materials, benefitting from wide body build rates, like the 787 trending upward. “We’re well positioned for both widebodies wherever they’re made in the world. It’s not just double-digit growth, it’s 30%, 40%, 50%, depending on the product type. So I would say we’re 12 months ahead of when they’re going to use it in many cases,” Wetherbee said. The Chief Executive reminded analysts that the company maintains strict inventory discipline: “We only produce to orders. We don’t produce to the build forecast.” That said, he noted that ATI is not seeing a lot of cancellations or reschedules, caused by vacillating rate changes. OE’s Propulsion Problems Prove Positive For ATIDavid Strauss, Research Analyst, Barclays Bank PLC, Research Division, posed the question of whether the troubled Pratt & Whitney’s GTF disc replacements will lead to revenue opportunity at ATI. “Yes. In the near term, we’re working very collaboratively with them to make sure their current flow paths continue to accelerate and flow well,” said Wetherbee, pointing to increased demand for materials and forgings for the extra spares. To support longer-term demand, ATI just finished an upgrade of one of its older iso-thermal presses “We’re pretty excited about the upside. We probably won’t see until ’25, ’26, ’27, but we are definitely on the right track,” he added. OEM’s Material EffectThe company reiterated that it is actively engaged with OEMs to lend its metallurgy expertise to prevent or mitigate issues, like the GTF powder contamination. “We have daily, weekly, quarterly technology exchanges with all the major OEMs, especially on the engine side. We’re involved in almost all qualifications to give them a second source on almost everything that they’re looking for,” he said, suggesting that continual conversation creates upside for both parties. |
Isn’t ATI’s success largely due to the embargo on Russian titanium imports?
Yes but then its what reality is and good for them