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ATI INC 10-K Analysis & Summary – 2/21/2025

⚠️This is not investment advice.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️

Libera Gaming Operations, Inc

Filing date:

02/21/2025

TLDR:

ATI Inc. shows growth in aerospace & defense markets with increased revenue and profitability. Risks include cyclical demand and raw material costs, but a strong backlog suggests a positive outlook.

ELI5:

ATI makes special materials for airplanes and defense. They’re doing well, but face some challenges like changing demand and material prices. Overall, things look promising.

Accession #:

0001628280-25-007092

Published on

Analyst Summary

  • Sales increased by 4.5% year-over-year, driven by strong performance in aerospace & defense.
  • Gross profit margin improved, indicating enhanced operational efficiency and pricing power.
  • Net income decreased due to one-time charges, but adjusted EBITDA showed a significant increase.
  • HPMC sales increased by 8% due to strong aerospace & defense demand.
  • AA&S sales increased by 2% driven by aerospace & defense, medical and electronics markets.
  • Current Ratio: 2.44
  • Quick Ratio: 1.32
  • Cash Ratio: 0.60
  • Debt-to-Equity Ratio: 1.68
  • Debt-to-Assets Ratio: 0.63
  • Interest Coverage Ratio: 5.50
  • Inventory Turnover: 2.66
  • Days Sales Outstanding (DSO): 59.32 days
  • Days Payable Outstanding (DPO): 64.10 days
  • Asset Turnover: 0.83
  • Price-to-Earnings Ratio (P/E): 22.76
  • Price-to-Book Ratio (P/B): 4.43
  • Price-to-Sales Ratio (P/S): 1.88
  • Enterprise Value to EBITDA (EV/EBITDA): 14.83
  • Revenue Growth: 4.51%
  • Net Income Growth: -10.47%
  • EPS Growth: -9.25%

Opportunities and Risks

  • Cyclical Demand: The cyclical nature of the industries served by ATI can lead to fluctuations in demand and profitability.
  • Raw Material Costs: Dependence on critical raw materials subject to price and availability fluctuations poses a risk to profitability.
  • Labor Relations: Renegotiation of collective bargaining agreements could lead to labor disputes and disruptions.
  • Cybersecurity Threats: Increasing cybersecurity threats pose a risk to the security of ATI’s systems and data.
  • Climate Change: Regulatory and market risks associated with climate change could impact ATI’s operations and demand for its products.
  • Aerospace & Defense Growth: Strong demand in the commercial aerospace market presents significant growth opportunities.
  • Capacity Expansion: Investments in capacity expansion, particularly in titanium melting, position ATI to meet growing demand.
  • New Technologies: Development of innovative alloys and additive manufacturing capabilities can drive future growth.
  • Medical Market Expansion: Strategic partnerships and capacity expansion in nitinol production offer significant growth potential in the medical device market.

Potential Implications

Company Performance

  • Successful renegotiation of collective bargaining agreements.
  • Impact of macroeconomic conditions on the commercial aerospace industry.
  • Company’s ability to manage raw material costs and maintain profitability.
  • Progress on strategic capital projects and capacity expansion.

ATI Inc. (ATI) – Form 10-K Report for Fiscal Year Ended December 29, 2024

Executive Summary

This report analyzes ATI Inc.’s Form 10-K filing for the fiscal year ended December 29, 2024. ATI demonstrates continued growth in its core aerospace & defense markets, driving increased revenue and profitability. Strategic initiatives, including cost management and capacity expansion, appear to be positively impacting the company’s financial performance. While risks related to cyclical demand, raw material costs, and labor relations remain, ATI’s strong backlog and focus on high-growth sectors suggest a positive outlook. A “Hold” recommendation is appropriate, pending further observation of the company’s ability to navigate these risks and capitalize on growth opportunities.

Company Overview

ATI Inc. is a global manufacturer of specialty materials and complex components, primarily serving the aerospace & defense markets. The company operates through two segments: High Performance Materials & Components (HPMC) and Advanced Alloys & Solutions (AA&S). ATI’s strategy focuses on maximizing growth in high-value markets through materials science expertise and advanced process technologies.

Detailed Analysis

Financial Performance

Metric 2024 2023 Change (%)
Sales (Millions USD) 4,362.1 4,173.7 4.5
Gross Profit (Millions USD) 898.2 802.6 11.9
Gross Profit Margin (%) 20.6 19.2 1.4
Net Income (Millions USD) 367.8 410.8 -10.5
Diluted EPS (USD) 2.55 2.81 -9.3
Adjusted EBITDA (Millions USD) 729.1 634.6 14.9
Adjusted EBITDA Margin (%) 16.7 15.2 1.5

Sales increased by 4.5% year-over-year, driven by strong performance in aerospace & defense and other core markets. Gross profit margin improved, indicating enhanced operational efficiency and pricing power. Net income decreased due to various one-time charges and benefits, including gains on asset sales and pension remeasurement losses. Adjusted EBITDA, excluding these non-recurring items, showed a significant increase, reflecting underlying operational improvements.

Segment Analysis

High Performance Materials & Components (HPMC)

  • Sales increased by 8% due to strong aerospace & defense demand.
  • EBITDA margin remained strong at 20.3%.

Advanced Alloys & Solutions (AA&S)

  • Sales increased by 2% driven by aerospace & defense, medical and electronics markets, offset by weakness in industrial markets.
  • EBITDA margin increased to 15.4% due to favorable sales mix.

Management’s Discussion and Analysis (MD&A) Insights

  • Management expresses optimism about future growth, particularly in the commercial aerospace sector.
  • Focus on operational improvements to manage working capital and improve cash flow.
  • Strategic capital projects are underway to expand capacity and enhance capabilities.

Risk Factors

  • Cyclical Demand: The cyclical nature of the industries served by ATI can lead to fluctuations in demand and profitability.
  • Raw Material Costs: Dependence on critical raw materials subject to price and availability fluctuations poses a risk to profitability.
  • Labor Relations: Renegotiation of collective bargaining agreements could lead to labor disputes and disruptions.
  • Cybersecurity Threats: Increasing cybersecurity threats pose a risk to the security of ATI’s systems and data.
  • Climate Change: Regulatory and market risks associated with climate change could impact ATI’s operations and demand for its products.

Opportunities

  • Aerospace & Defense Growth: Strong demand in the commercial aerospace market presents significant growth opportunities.
  • Capacity Expansion: Investments in capacity expansion, particularly in titanium melting, position ATI to meet growing demand.
  • New Technologies: Development of innovative alloys and additive manufacturing capabilities can drive future growth.
  • Medical Market Expansion: Strategic partnerships and capacity expansion in nitinol production offer significant growth potential in the medical device market.

Uncommon Metrics

  • Managed Working Capital: Managed working capital as a percentage of sales remained relatively stable, indicating efficient asset management.
  • Backlog: Strong backlog of confirmed orders provides revenue visibility for the coming year.

Conclusion and Actionable Insights

ATI Inc. demonstrates a solid financial performance with growth driven by its core aerospace & defense markets. The company’s strategic initiatives and focus on operational efficiency are yielding positive results. However, investors should be aware of the risks associated with cyclical demand, raw material costs, and labor relations. The “Hold” recommendation reflects a balanced view of ATI’s growth potential and the need to monitor its ability to navigate these risks. Key areas to watch include:

  • The successful renegotiation of collective bargaining agreements.
  • The impact of macroeconomic conditions on the commercial aerospace industry.
  • The company’s ability to manage raw material costs and maintain profitability.
  • Progress on strategic capital projects and capacity expansion.

ATI Financial Analysis – 2024

Financial Ratio and Metric Analysis

Profitability

  • Gross Profit Margin:

    • Ratio/Metric: Gross Profit / Sales = $898.2M / $4,362.1M = 20.59%
    • Trend: 20.59% vs. 19.2% in 2023, a 7.24% increase.
    • Industry: The aerospace and defense industry typically sees gross profit margins between 20% and 30%. ATI’s margin is within this range.
  • Operating Profit Margin:

    • Ratio/Metric: Operating Income / Sales = $608.9M / $4,362.1M = 13.96%
    • Trend: 13.96% vs. 11.18% in 2023, a 24.87% increase.
    • Industry: A good operating margin for aerospace and defense is typically between 10% and 15%. ATI’s margin is within this range.
  • Net Profit Margin:

    • Ratio/Metric: Net Income Attributable to ATI / Sales = $367.8M / $4,362.1M = 8.43%
    • Trend: 8.43% vs. 9.84% in 2023, a -14.33% decrease.
    • Industry: Net profit margins for aerospace and defense companies are often in the 7% to 10% range. ATI’s margin is within this range.
  • Return on Assets (ROA):

    • Ratio/Metric: Net Income Attributable to ATI / Total Assets = $367.8M / $5,230.6M = 7.03%
    • Industry: The average ROA for aerospace and defense companies is around 5%. ATI’s ROA is above average.
  • Return on Equity (ROE):

    • Ratio/Metric: Net Income Attributable to ATI / Total Stockholders’ Equity = $367.8M / $1,955.2M = 18.81%
    • Industry: The average ROE for aerospace and defense companies is around 12%. ATI’s ROE is above average.
  • Earnings Per Share (EPS) – Basic and Diluted:

    • Ratio/Metric: Basic EPS = $2.82, Diluted EPS = $2.55
    • Trend: Basic EPS decreased by 12.15% (from $3.21), and Diluted EPS decreased by 9.25% (from $2.81).
    • Industry: EPS varies widely, but ATI’s EPS is competitive within its sector.

Liquidity

  • Current Ratio:

    • Ratio/Metric: Total Current Assets / Total Current Liabilities = $2,945.0M / $1,208.5M = 2.44
    • Trend: 2.44 vs. 2.80 in 2023, a -12.86% decrease.
    • Industry: A current ratio of 1.5 to 2.0 is generally considered healthy. ATI’s ratio is above this range, indicating strong liquidity.
  • Quick Ratio (Acid-Test Ratio):

    • Ratio/Metric: (Total Current Assets – Inventory) / Total Current Liabilities = ($2,945.0M – $1,353.0M) / $1,208.5M = 1.32
    • Trend: 1.32 vs. 1.52 in 2023, a -13.16% decrease.
    • Industry: A quick ratio above 1.0 is generally considered acceptable. ATI’s ratio indicates reasonable short-term liquidity.
  • Cash Ratio:

    • Ratio/Metric: Cash and Cash Equivalents / Total Current Liabilities = $721.2M / $1,208.5M = 0.60
    • Trend: 0.60 vs. 0.76 in 2023, a -21.05% decrease.
    • Industry: A cash ratio of 0.5 or higher is often seen as a sign of good liquidity. ATI’s ratio is within this range.

Solvency/Leverage

  • Debt-to-Equity Ratio:

    • Ratio/Metric: Total Liabilities / Total Stockholders’ Equity = $3,275.4M / $1,955.2M = 1.68
    • Trend: 1.68 vs. 2.37 in 2023, a -29.11% decrease.
    • Industry: A debt-to-equity ratio of around 1.0 is typical. ATI’s ratio is higher, indicating a more leveraged position, but the decrease is a positive sign.
  • Debt-to-Assets Ratio:

    • Ratio/Metric: Total Liabilities / Total Assets = $3,275.4M / $5,230.6M = 0.63
    • Trend: 0.63 vs. 0.70 in 2023, a -10.00% decrease.
    • Industry: A debt-to-assets ratio below 0.5 is generally considered good. ATI’s ratio is above this, but the decrease is a positive sign.
  • Interest Coverage Ratio (Times Interest Earned):

    • Ratio/Metric: EBIT / Interest Expense = ($486.1M + $108.2M) / $108.2M = 5.50
    • Trend: 5.50 vs. 4.18 in 2023, a 31.58% increase.
    • Industry: An interest coverage ratio above 3.0 is generally considered safe. ATI’s ratio indicates a strong ability to cover interest expenses.

Activity/Efficiency

  • Inventory Turnover:

    • Ratio/Metric: Cost of Sales / Average Inventory = $3,463.9M / (($1,353.0M + $1,247.5M) / 2) = 2.66
    • Trend: To determine the trend, we would need the Inventory Turnover from the previous comparable period, which is not provided in the filing.
    • Industry: Inventory turnover varies, but a typical range for manufacturing is 3-6. ATI’s is slightly below this range.
  • Days Sales Outstanding (DSO):

    • Ratio/Metric: (Accounts Receivable / Sales) * 365 = ($709.2M / $4,362.1M) * 365 = 59.32 days
    • Trend: To determine the trend, we would need the DSO from the previous comparable period, which is not provided in the filing.
    • Industry: DSO varies, but a typical range is 30-60 days. ATI’s is within this range.
  • Days Payable Outstanding (DPO):

    • Ratio/Metric: (Accounts Payable / Cost of Sales) * 365 = ($609.1M / $3,463.9M) * 365 = 64.10 days
    • Trend: To determine the trend, we would need the DPO from the previous comparable period, which is not provided in the filing.
    • Industry: DPO varies, but a typical range is 30-60 days. ATI’s is slightly above this range.
  • Asset Turnover:

    • Ratio/Metric: Sales / Total Assets = $4,362.1M / $5,230.6M = 0.83
    • Trend: To determine the trend, we would need the Asset Turnover from the previous comparable period, which is not provided in the filing.
    • Industry: Asset turnover varies, but a typical range is 0.5-1.0. ATI’s is within this range.

Valuation

  • Price-to-Earnings Ratio (P/E):

    • Ratio/Metric: Stock Price / EPS = $58.03 / $2.55 = 22.76
    • Trend: To determine the trend, we would need the P/E from the previous comparable period, which is not provided in the filing.
    • Industry: The average P/E ratio for the S&P 500 is around 20-25. ATI’s P/E ratio is within this range.
  • Price-to-Book Ratio (P/B):

    • Ratio/Metric: Market Cap / Book Value of Equity = (141.39M * $58.03) / $1,850.4M = 4.43
    • Trend: To determine the trend, we would need the P/B from the previous comparable period, which is not provided in the filing.
    • Industry: A P/B ratio between 1 and 3 is often considered reasonable. ATI’s P/B ratio is above this range.
  • Price-to-Sales Ratio (P/S):

    • Ratio/Metric: Market Cap / Sales = (141.39M * $58.03) / $4,362.1M = 1.88
    • Trend: To determine the trend, we would need the P/S from the previous comparable period, which is not provided in the filing.
    • Industry: A P/S ratio below 2 is often considered good. ATI’s P/S ratio is within this range.
  • Enterprise Value to EBITDA (EV/EBITDA):

    • Ratio/Metric: (Market Cap + Total Debt – Cash) / EBITDA = ((141.39M * $58.03) + $1,895.3M – $721.2M) / $729.1M = 14.83
    • Trend: To determine the trend, we would need the EV/EBITDA from the previous comparable period, which is not provided in the filing.
    • Industry: An EV/EBITDA ratio between 10 and 15 is often considered reasonable. ATI’s EV/EBITDA ratio is within this range.

Growth Rates

  • Revenue Growth:

    • Ratio/Metric: ($4,362.1M – $4,173.7M) / $4,173.7M = 4.51%
    • Trend: Revenue grew by 4.51% from 2023 to 2024.
    • Industry: The aerospace and defense industry is expected to grow at a rate of 3-5% annually. ATI’s revenue growth is within this range.
  • Net Income Growth:

    • Ratio/Metric: ($367.8M – $410.8M) / $410.8M = -10.47%
    • Trend: Net income decreased by 10.47% from 2023 to 2024.
    • Industry: Net income growth varies widely, but the decrease is a negative sign.
  • EPS Growth:

    • Ratio/Metric: ($2.55 – $2.81) / $2.81 = -9.25%
    • Trend: EPS decreased by 9.25% from 2023 to 2024.
    • Industry: EPS growth varies widely, but the decrease is a negative sign.

Other Relevant Metrics

  • Managed Working Capital: Managed working capital increased from $1,321.9 million in 2023 to $1,451.3 million in 2024, representing 30.9% of annualized sales, a slight decrease from 31.1% in the prior year.
  • Segment Performance: High Performance Materials & Components (HPMC) saw an 8% increase in sales and a 6% increase in EBITDA. Advanced Alloys & Solutions (AA&S) experienced a 2% increase in sales and a 16% increase in EBITDA.
  • Goodwill Impairment Assessment: The audit highlighted the complexity of the goodwill impairment test for the Forged Products reporting unit due to the subjective nature of management’s assumptions, particularly the weighted-average cost of capital.

Commentary

ATI’s financial performance in 2024 shows mixed results. Revenue experienced moderate growth, driven by strong performance in the Aerospace & Defense sector, but net income and EPS declined. The company maintains strong liquidity and has reduced its leverage, as indicated by the improved debt-to-equity and debt-to-assets ratios. While profitability margins remain healthy, the decrease in net income and EPS warrants further investigation to understand the underlying drivers and potential impacts on future performance.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️