ATI
#To Pat's conversation or his comments on where we are in Q3 from a demand standpoint going into Q4, there were three major issues for us.
One is oil and gas and the oil and gas market.
We're confident that we're maintaining our share of that market, but we're seeing less demand in things like umbilicals and those kind of things, Q3, Q4.
We're also seeing the ---+ what has been called destocking in our distribution community as they head into year end.
Nickel prices have been relatively stable here over the last few months, but they're into their year-end inventory reduction.
The third thing we saw was push out on some major capital projects.
Now that said, in the last few weeks heading into Q1, we're seeing an uptick in quoting activity, lead time activity, lots of questions from customers as they prepare for what they see as a stronger first half in capital projects in oil and gas.
<UNK>, we're not changing our guidance on capital.
The $20 million of essentially carry over is being pushed out from 2016 into 2017.
We don't have any significant capital investments being considered for 2017.
The biggest strategic project we have is the completion of the nickel superalloy powder facility, the new greenfield facility down in North Carolina, and that by the way is progressing very, very well, and is on schedule and will be started up here in 2017.
So capital remains on track.
I think in addition to the comments that Pat and <UNK> made on flat rolled products, the market situations are the market situations.
We don't control those.
We do have strong views and take a lot of input, and we did think the fourth quarter was going to be a stronger demand and a stronger operating rate in the fourth quarter, especially for some of the differentiated projects ---+ differentiated products that touch on some of the big global projects that <UNK> touched on.
And they have been ---+ we thought that some of those awards were going to be made here in the third quarter and we'd be producing in the fourth quarter, and it looks like it's flipping by about a quarter.
So that hurts us.
And quite frankly, we have to do better.
Some of it was within our control, and <UNK> and his team know that and acknowledge that, and we know what the ---+ we see the pathway, right.
We know what has to be done in order to achieve what we said.
We don't take lightly what we said.
That is our commitment first to ourselves and then to our shareholders.
We will continue to focus on pulling all the levers and taking all the actions within our control on turning around flat rolled, and we do think that we will begin to see some benefit from the market, which is always critical in these businesses which have relatively high fixed costs.
Over a long period of time, there is no such thing as a fixed cost.
Over a shorter period of time, there is and absorption does matter.
So no excuses.
We have to do better.
Yes, I think every one of our competitors is different.
They have different product mix profiles.
We make some things that some of our competitors don't make, and they make things that we don't make so it's really hard to compare.
I think from a macro basis, as I kind of look through some of the comments that were being made, especially as it pertains to an alloy system that we don't make, which is aluminum, I think there are some comparables between what two of the aluminum ---+ the flat-rolled aluminum producers have said about inventory correction that I'm sure has an impact on their operations that doesn't impact us.
I mean, I think on the titanium inventory correction side, which we do make, as it services the airframe market, as you'll remember, <UNK>, we went through that for a prolonged period of time a couple of years ago, right.
I think that's in a better situation and in a better condition.
I think the biggest issue is really on the differentiated products.
I spent a lot of time going through in my prepared comments the meaning of that, not only from a mill product form standpoint but also as it is produced in the forgings, primarily forgings at this point in time because we're not yet delivering what we need to deliver on the titanium investment casting side, but we will.
But on the forgings side, both the hot die and the isothermal, I mean we're really very good at making those parts, quite frankly.
If I could tout the and recognize the job that <UNK> <UNK> and his team does.
We're good at it, and our customers know that.
And where others might be stumbling a little bit as they maybe start to ramp up, we are there to support the customer, and we have seen some of those.
The other side is the legacy demand on the jet engine side is still very strong, and some of the LTAs, long-term agreements, that we were awarded in 2015 give us parts that we never produced before, quite frankly, especially on the forged products side.
And we're seeing that.
I think quite frankly you would see that even more of a dynamic level of improvement in profitability in high performance if some of those other end markets were hitting on some better demand side.
The oil and gas market, which is an important market for high performance, is not in good shape.
The electrical energy, the large combined-cycle industrial gas turbines outside of maybe demand from China, not in good shape.
And the chemical processing industry is important.
So I think there are similarities between companies we compete with.
There are differences.
What we're seeing is what I said in my comments.
And 2017, I think we've already commented on flat rolled products.
We expect the segment to be profitable.
I don't think it's going to be heroic because we're not looking at underlying, real strong demand in some of those end markets, so I think it will be more by brute force.
Right at this point in time as we position that business well, so I think it will be low-single-digits type of thing.
And I think the high performance will be into the teens, the low teens at this point as the market, primarily aerospace, we're not banking on oil and gas being a strong demand driver in 2017, or any of the other end markets that are kind of languishing right now.
We don't think that that will change dramatically in 2017.
When they do come back, when the demand does come back, those are kind of different capacities that produce some of those products.
They will be significant profit drivers that will build on the momentum that we have in aerospace.
<UNK>, do you want to comment.
Hello, <UNK>.
No, we saw no deferrals from Q3 to Q4.
Did you get that, <UNK>.
It's really three things, <UNK>, and I think <UNK> has touch on several of these.
First of all, it's the long-term agreements that we've won that are a combination of legacy programs that we had not either been on before, or parts that we had lost in earlier negotiations.
Second is the next-generation platforms, particularly the single-aisle programs.
And third, the combination of the differentiated products associated with them that really represent for us a fully integrated solution for our customers beginning in our mill products businesses pulling through our forging and castings businesses.
The net combination of all that meant we've got growing volume through our facilities, and that growing volume is really helping with cost absorption, and once we hit a good absorption profile with that mix, we get a higher incremental margin and I think you're beginning to see that.
Right.
It's a combination of mix and volume.
Thank you all for joining us on the call today, and as always, thank you for your continuing interest in ATI.
Thank you, <UNK>, and thanks to all of our listeners for joining us today.
That concludes our conference call.
