Allegheny Technologies (NYSE: ATI) reported Q3 EPS of $0.37, $0.02 worse than the analyst estimate of $0.39. Revenue for the quarter came in at $1.02 billion versus the consensus estimate of $1 billion.

Strategy and Outlook

“In the HPMC segment, we expect continued year-over-year revenue and operating profit growth in the fourth quarter 2018 resulting from ongoing aerospace market demand growth and improved asset utilization. We reiterate our guidance for a full year 2018 segment operating profit margin improvement of approximately 300 basis points compared to 2017. We remain confident in our customers’ elevated order patterns due to increasing jet engine build rates over the next several years. Our focus is on strong operational execution and on meeting our aerospace customer’s production requirements regardless of aircraft build rate,” Wetherbee said.

“In the FRP segment, significant price declines in several key raw materials are expected to result in weaker fourth quarter 2018 results due to the short-term mismatch between input costs and the surcharge index pricing mechanism. We anticipate our U.S. Operations to remain profitable in the fourth quarter despite these higher input costs. Even with these short-term headwinds, we continue to expect a 2018 year-over-year operating margin improvement of 150 to 300 basis points driven by continued strong end-market demand, ongoing growth of our differentiated product sales, and the benefits from improved HRPF utilization.

“Year-over-year cost inflation in many raw materials used to manufacture our products is likely to represent a moderate LIFO expense headwind in the fourth quarter of 2018 which would be greater than and not fully offset by our remaining NRV inventory reserves,” Wetherbee continued.

“Cash generation from operations remains a key focus, and we intend to carefully balance our working capital and other cash needs with the pace of our capital expenditures. We expect strong fourth quarter 2018 cash generation and reiterate our goal to generate at least $150 million of free cash flow for the full year 2018, excluding $40 million in contributions to the ATI Pension Plan. Finally, we expect to end 2018 with zero borrowings under our ABL revolving credit facility,” Wetherbee concluded.

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