RTI International Metals, Inc., (NYSE: RTI), released results today for the third quarter of 2010.
“Finally, I would just like to highlight for our investors that our reported earnings are being impacted dramatically by counterintuitive income tax provisions. Consequently, our pretax results in the second and third quarters are more reflective of the Company's operations than are our reported net income for those periods.”
Third Quarter 2010 Results
- Net sales for the third quarter were $102.6 million
- Third quarter loss before income taxes was $2.9 million
- Strong liquidity with cash and short-term investments of $133.9 million plus an unused revolving credit facility
- Titanium mill product shipments for the quarter totaled 2.7 million pounds at an average realized price of $18.05 per pound
For the third quarter, RTI reported a loss before income taxes of $2.9 million, on net sales of $102.6 million. The net loss during the period was $16.8 million, or $0.56 per diluted share. This net loss was significantly impacted by a disproportionately high income tax charge during the quarter of $13.9 million, caused primarily by the reversal of a large, counterintuitive income tax benefit of $8.1 million on income before income taxes of $2.2 million reported in the second quarter of 2010. These relatively large income tax impacts for both quarters were driven primarily by the mix of domestic and foreign results, applicable tax rates, and the level of operating results. For the third quarter of 2009, RTI reported a net loss of $8.7 million, or $0.35 per diluted share, on net sales of $100.2 million and a loss before income taxes of $4.8 million.
For the nine months ended September 30, 2010, RTI reported earnings before income taxes of $10.9 million, on net sales of $317.1 million, compared with a loss before income taxes of $9.1 million, on net sales of $310.7 million for the same period a year ago. Net income for the first nine months of 2010 was $4.9 million, or $0.16 per diluted share, compared with a net loss of $10.0 million, or $0.42 per diluted share, for the same period a year ago.
The Company expects that the provision for income taxes for 2010, as compared to the provision reported for the third quarter, will be disproportionately high on a percentage basis, but lower on a nominal basis.
Titanium Group
For the third quarter of 2010, the Titanium Group posted operating income of $1.3 million on net sales of $52.3 million, including intersegment sales of $20.0 million. During the same period in 2009, this Group reported operating income of $1.0 million on net sales of $54.4 million, including intersegment sales of $25.6 million. Although average sales prices were down as a result of a higher percentage of lower priced product mix during the quarter, increased shipments overall plus a strengthening in ferro-alloy demand contributed to the increase in operating income versus the third quarter of 2009.
During the first nine months of 2010, the Titanium Group posted operating income of $18.1 million on net sales of $168.7 million, including intersegment sales of $67.1 million. During the first nine months of 2009, operating income was $7.4 million on sales of $180.9 million, including intersegment sales of $94.6 million. The increase in operating income during the nine month period was driven primarily by a payment from Airbus during the first quarter without any associated cost of sales.
Mill product shipments for the third quarter were 2.7 million pounds at an average realized price of $18.05 per pound, compared to mill product shipments of 2.4 million pounds in the third quarter of 2009 at an average realized price of $21.32 per pound.
Mill product shipments for the first nine months of 2010 were 7.4 million pounds at an average realized price of $18.88 per pound compared to mill product shipments of 7.8 million pounds in 2009 at an average realized price of $21.95 per pound.
Fabrication Group
During the third quarter of 2010, the Fabrication Group posted an operating loss of $3.0 million on net sales of $34.1 million. For the same period in 2009, this Group had an operating loss of $0.5 million on net sales of $27.3 million. The increase in the operating loss during the third quarter of 2010 versus the same period in 2009 was caused primarily by yield losses associated with the ramp-up of the Boeing 787 Dreamliner Pi-Box program, as well as underutilized capacity.
For the first nine months of 2010, the Fabrication Group reported net sales of $100.0 million and an operating loss of $9.1 million compared with net sales of $79.9 million resulting in an operating loss of $14.2 million for the same period in the prior year. The lower operating loss, during the current period versus the same period in 2009, was driven mostly by the completion of several engineered components to support the containment of the oil spill in the Gulf of Mexico during the second quarter.
Distribution Group
For the third quarter of 2010, the Distribution Group posted an operating loss of $0.5 million on net sales of $36.2 million. During the same period in 2009, this Group earned operating income of $1.4 million on net sales of $44.1 million. The operating loss during the period reflected lower demand for both titanium and specialty alloys, resulting in decreased selling prices.
Year-to-date, the Distribution Group reported net sales of $115.5 million resulting in operating income of $2.5 million, compared with net sales of $144.5 million and operating income of $6.4 million for the same period in the prior year.
CEO Comment
Dawne S. Hickton, Vice Chairman, President, and CEO stated, "For the first time since 2008, we are starting to see a pickup in mill product demand as evidenced by stronger than expected ordering activity from our traditional customer base. However, the impact of the recently revised Airbus contract has resulted in more mill product demand than initially anticipated, which, when combined with the mix of new orders, has resulted in lower average sales prices. And, I would expect this level of pricing to be continued through the fourth quarter. Nonetheless, we now have visibility to mill product shipments approaching 10.0 million pounds for 2010.
"Although demand appears to be picking up, continued caution is warranted. The destocking of titanium mill product inventory in the commercial aerospace supply chain must run its course before we see a meaningful pickup in titanium aerostructure demand and pricing. Although it is too soon to predict when this will occur, I would not be surprised to see it in the back half of 2011 or early 2012.
"With respect to the Fabrication Group, although we will not see the positive results for several more quarters, this Group continues to win work packages on the next generation commercial and military aerospace platforms. These awards demonstrate that our customers recognize and value our integrated strategy.
"Finally, I would just like to highlight for our investors that our reported earnings are being impacted dramatically by counterintuitive income tax provisions. Consequently, our pretax results in the second and third quarters are more reflective of the Company's operations than are our reported net income for those periods."