Q2 2023 ATI Inc Earnings Call
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Thank you good morning, and welcome to Hei second quarter 2023 earnings call.
Today's discussion is being broadcast on our website.
Dissipating in todays call to share key points from our second quarter are Bob Wetherbee Mohr chair and CEO .
Newman Executive Vice President and CFO .
Before starting our prepared remarks, I would like to draw your attention to the supplemental presentation that accompanies this call.
Those slides to provide additional color and details on our results and outlook can be found on our website at ATI materials Dot com.
After our prepared remarks, we'll open the line for questions.
As a reminder, all forward looking statements are subject to various assumptions and caveats. These are noted in the earnings release and in the slide presentation.
Now I'll turn the call over to Bob.
Thanks, Dave.
Again by welcoming you to the ATI team.
Happy to happy with Us and we're seeing the impact of your presence already so thanks for being here.
We reported another strong quarter with sequential top line growth and margin expansion.
We've accomplished a lot and I'll use my time this morning to focus your attention on the three highlights about the quarter that I think are most important.
First our core aerospace and defense markets are strong.
We continue to grow in A&D, both in absolute dollars and as a percentage of our total revenue and income.
Why is this all important.
Q2, A&D sales increased 5% over the prior quarter and 39% over Q2 of 2022.
Specifically in the defense markets sales surpassed $100 million in the second quarter. This.
This is up 7% from the prior quarter and 25% year over year.
They are sustained demand in materials for military ground vehicles rotorcraft and naval applications.
Looking longer term, we're playing a key role in the advancement hypersonic technologies, an area with significant growth opportunity for our highly differentiated materials.
Demand continues to accelerate our order backlog is up more than 20% from the beginning of the year.
Reaching $3 5 billion at the end of June .
When you put it all together strong sequential top line growth in sales.
Increasing productivity.
Very healthy backlog.
We're in a very robust part of the cycle with the best still ahead of us.
Our percentage of ATI overall revenue attributed to aerospace and defense is now 58% just a year ago that number was 46%.
We're making rapid progress toward our A&D sales goal of 65%.
Highlight number too.
Our strategic transformation continues to deliver greater and greater benefits.
Our high performance materials and components segment is hitting its stride.
Sales in this segment grew 12% quarter over quarter, and 33% year over year, driven by ramping commercial aerospace production and robust defense demand.
Equally important HPLC EBITA margins increased 350 basis points sequentially to 25% of sales.
This increase was driven by improved overall pricing mix and volume.
All three are enabled by the continued realization of efficiencies in our operations.
Our operating teams are doing great work, continuing to improve efficiencies and debottleneck, our critical production flow paths.
The team also recognizes that we're not done improving we still have work to do that improve the velocity of inventory through our system.
We want to be on managed working capital as a percentage of sales and for a variety of reasons that dawn will provide color on shortly.
But I'm confident we will see tangible improvement in this metric in the second half of the year.
Highlight number three.
ATI adjusted earnings per share was <unk> 59 sets landing at the top end of our guidance range.
It all starts with doing what we say, we will do and delivering on our commitments to our customers and our shareholders.
And we do this in the face of challenges, including continued recessionary headwinds in the industrial markets served by our advanced alloys and solutions segment.
Our Asian precision rolled strip business is stabilizing but not yet in the recovery.
And we're experiencing continuing late deliveries are directed by forging billet supplied by third parties.
Q2 was a strong very productive quarter for ATI, it's one more chapter.
And there's more of this story to come.
I am excited to talk about how we see this quarters results, leading us into a strong second half of 2023 and beyond.
Provide more on that in a moment, but first Don will share his take on these results and our guidance for the second half I'll be back after that to share my perspective on ati's future and take us into questions.
Thanks, Bob following the same headlines I will add some more color on our results and financial trajectory first up.
Our increasing Andy content.
This is directly in line with our strategy to expand our aerospace and defense leadership.
Reaching a near term high 58% of Ati's Q2 revenue is driven by Andy.
This is up 200 basis points year over year, and up 200 basis points sequentially.
With strengthening demand Andy offer some of our highest margins and projected sustained growth.
Our golf, Randy content is 65% or higher of our total business.
Andas should continue to drive growth for ATI and.
And we project it will be greater than 60% of total sales by year end.
Within A&D sequential jet engine sales increased 10% and defense sales rose by 7%.
Strong trends, we expect to continue.
Turning to headline number two margin performance.
<unk> overall, adjusted EBITDA margin increased to 14, 3%.
That's an increase of 150 basis points sequentially driven by our <unk> segment.
Overall, adjusted EBITDA increased by 13% from last quarter, and 5% year over year.
Let's take a closer look at <unk> Q2 results.
2023, Q2 sales increased $56 million or 12% compared to the first quarter of 2023.
Remember A&D content makes up 83% of total Q2 <unk> sales.
It's a key driver in the 33% year over year increase in <unk> revenues.
Another positive <unk> performance was a reduction of our lingering cost inefficiencies from 2022 in Q1 2023.
As expected that roughly $5 million headwind incurred in Q1 declined this quarter.
The improved mix and efficiencies are clearly visible in <unk>, adjusted EBITDA margins, which improved 350 basis points sequentially to 25%.
Our 2025 targeted EBITDA margins for HP EMC are in the low to mid 20% range.
This puts us in line with those 2025 targets.
Strength in HPLC offset flatness in our E&S segment, where we saw a sequential sales decline.
That was primarily due to softness in general industrial end markets and lingering economic impacts associated with our Asian precision rolled strip business.
We're doing a lot of things well and has chosen our results.
One area that we know there's opportunity for improvement is managed working capital.
It's an area of critical focus for hei and our leadership team.
At the end of the second quarter managed working capital was $1 6 billion or 39% of sales.
This balanced drops by 120 basis points, when adjusted for our $50 million strategic raw material purchase we made in Q2.
That purchase was funded with a draw on our ABL revolver.
We expect that strategic inventory largely they'd be consumed and the ABL draw to be repaid by the end of the year.
What else is driving higher working capital.
I would point to three things.
First with.
We've put inventory into position for the continuing and DRAM.
As Bob noted our backlog has grown more than 20% year to date, including 9% growth in Q2.
Second our production rates are improving which can create inventory spikes as we work to solve downstream bottlenecks and constraints.
And third we have inventory associated with expanding titanium melt capacity ahead of ramping sales.
The good news is all of these drivers lead to higher sales earnings and cash generation.
We focus on inventory for our purpose.
Ramping ahead of new revenue is the best purpose I can think of for near term inventory increases.
We are focused on hitting our 30% managed working capital target by year end and we're confident we will deliver.
We are equally sharp focus on efficient and strategic capital deployment.
Our capex for the first half of 2023 was $103 million, which includes $38 million of carryover related to capital expenditures accrued at the end of 2022.
Overall, we remain on track in 2023 with our disciplined capital investment plan.
We're holding our previous annual Capex guidance of $200 million to $240 million.
It is important to emphasize this guidance includes expenditures associated with our recently announced titanium melter expansion in Richland Washington.
We are managing the challenges of working capital in concert with prudent and focused capital expenditures.
Therefore, we are holding our annual range of free cash flow at $125 million to $175 million.
Expanding on cash management, we generated $68 million of cash from operations in Q2.
We ended the quarter with a total liquidity of approximately $770 million.
This reflects $267 million in cash and $500 million available under our ABL facility.
We remain committed to our balanced capital deployment strategy, which includes returning capital to shareholders.
In last quarter's call, we announced the next tranche of share repurchases with a $75 million buyback program.
While we did not repurchase shares in Q2, we expect to complete the $75 million program by the end of the year.
And our third area to highlight it was a strong quarter for earnings per share.
At <unk> 59 per share adjusted EPS was at the high end of our guidance range and <unk> above the midpoint of the range we provided.
The higher performance reflects favorable price and mix tied to <unk> growth.
This was partially offset by slower industrial demand and moderately lower raw materials metal prices.
This positive performance builds on our results from the first quarter.
This was our fourth consecutive quarter in which revenue exceeded $1 billion.
Our revenue of $1 5 billion reps.
It represents a 9% increase year over year and reinforces the sustained strength in demand.
We are confident in our position as a premier aerospace and defense supplier.
Now, let's look forward to Q3 and full year guidance.
For the third quarter, we expect adjusted EPS to be in the range of 51 to 57.
The midpoint of the range 54 cents is below Q2, driven by planned facility outages in the third quarter.
It also reflects our expectation that sales in our Asia precision rolled strip business will continue to be pressured due to China's economic conditions.
We are also assuming the slowdown in industrial demand will continue in Q3.
We are raising our full year EPS guidance to a range of $2 15 to $2 35 per share.
You can use the full year and Q3 EPS guidance to get a sense of how we're thinking about Q4 performance.
Assuming Q3, and full year EPS or at the midpoint of their respective ranges than Q4, EPS would be in the range of 63 per share.
That'd be a strong finish to a great year, and we will provide nice momentum as we move into 2024.
What would drive an EPS increase in Q4.
Continued robust A&D demand contributions from the restart of the 34th Avenue facility in Albany, Oregon.
And continued operational improvements.
With that I will turn the call back over to Bob.
Thanks, Dan we've covered a lot this morning, and I can sum it up in one simple statement.
We are confident.
Look at markets recovering demand accelerating.
<unk> and disciplined execution.
Stronger backlog than we've added a long time if ever.
Right picture I think of where we are in a very positive trajectory going forward.
We're converting near term demand into long term agreements in June we announced that we secured over $1 2 billion in new commitments.
That's an average of $200 million in new sales per year from 2024 to 2029.
Of this roughly 70% is incremental to our announced 2025 targets.
I assume are targeted incremental EBITDA margin of 30% to 35% on the sales and.
The result is an estimate an additional $40 million to $50 million of EBITDA per year above our previously announced targets.
The collective commitments encompass nickel and titanium materials for Aero engine, and airframe applications and ground vehicle armor.
They represent new share positions and support sustained future growth.
To meet this rising demand we continued to increase critical capacity to ensure we can meet the needs of our customers.
It starts with getting more from existing assets.
Ah restarted Albany, Oregon, titanium melt shop is producing at the target levels in the third quarter.
That's a key component of delivering the 35% increase in capacity on our 2022 baselines.
We're already producing ingots at that location.
We will see a positive financial impact from this capacity as the ingots gets shipped is end products starting in Q4.
A few quarterly calls ago, we announced even more expansion to deliver incremental titanium melt capacity.
Last month, we named our existing operation in Richland, Washington, as the site of that build.
The expansion is well underway.
As we shared previously it will increase ati's titanium production by an additional 35% over our 2020 to baseline.
This additional increase is projected to be online by the end of 2024.
Additional product qualifications will occur in 2025, we.
We expect revenue of profits to reach their full run rate in 2026.
Added together, 35% increase from existing assets, including the Albany restart.
35% from the expansion in Richland.
70% more capacity to support $1 2 billion and confirmed commitments.
To say the least we are well positioned for a strong future.
It's important to highlight that the expansion in Richland as capabilities in addition to capacity.
We will have the flexibility to produce both standard and premium quality to serve both airframe and Aero engine demand.
We gained speed and flexibility in the form of extraordinary chemistry control and the ability to input both recycled and prime materials.
We continuously refine and advance the mix of capabilities and products, we deliver for our customers to drive the most value for our shareholders.
Our strategic transformation has reduced volatility in our quarterly results related to raw material pricing.
It stabilizes the consistency of our quarter on quarter performance and fuel strategic growth and value creation.
So wrapping it up what are we confident about where.
We're confident in our strategy laser focused on the strong A&D market.
We're confident in our execution the team is delivering to our customers to meet this ever growing demand.
And we're getting stronger everyday unlocking opportunity in operational efficiencies across all of ATI.
We're confident in our growth in a disciplined way, we're adding capacity and capability.
Gives me confidence in our performance today, and what we will achieve long term.
We're confident in the shareholder value, we provide doing what we say we will with a clear path to go beyond <unk>.
But at least I am confident in our team.
We're working together across the enterprise constantly pushing ourselves to higher levels of performance.
Each new production record, we set brings more ideas and drives us to strive for more.
We've created a system that leverages collaboration and accelerates improvements.
I am honored to lead this team forward.
Our success is a large part of why we were delighted to add the role of president to Kim fields responsibilities as Chief operating officer.
The team is performing and optimizing our business.
Yes, it's great to take a minute to recognize the impact her leadership is having our customers feel it our shareholders are certainly seeing it and our team is responding to it.
<unk>, our first earned and not given.
And often.
Well before that given the earned so thank you Kim.
We're in a great position to grow it's one of the things that makes us proven to perform.
Operator, we're ready for the first question.
Thank you, we'll now until the Q&A session, if you'd like to ask a question. Please press star followed by one on your Timna. Thank you Todd If you change your mind I would like to have bank. Your question. Please press star followed by <unk>.
When preparing to ask your question, Jason and shield devices on mute.
Our first question comes from Richard Safran from D called Richard Your line is now open. Please go ahead.
Okay.
Thanks.
Bob Dan Dave Good morning, how are you.
Good morning.
Yes.
Tom I think this first one maybe for you and then.
Bob if it's okay, you got a quick follow up.
Tom I'm going to ask if you could expand on those comments you were making at the Paris Air show.
The $1 2 billion in new contracts I'm kind of wondering if this work is margin accretive and how we'll also we should think about what that does to your 30% to 35% incremental margin comments that you've made.
<unk>.
Okay. Let me, let me take a run at that the short answer is yes, there should be accretive and let me walk you through the math on that so we've shared is $1 $2 billion of sales commitments over a six year period see a spread that out do you expect.
About $200 million, a year and of that as we think about our 2025 targets.
About 70% of that $200 million in annual revenue is incremental.
And then as you think about the margins on that rich think in terms of 30% to 35% for that new business that we're picking up.
Of course, the math on that that indicates we're going to have probably between 40 and $50 million of incremental <unk>.
EBITDA thats going to be generated from that that new business. As you think about well how does that affect our existing EBITDA margins for our targeted 2025, and then those 30% to 35% incremental margins for the overall business the short answer there.
This should be incremental and the way to think about the incremental effect I know youre going to do the math on it but the math is going to prove out that its probably 30% to 40 basis points.
Enhancement.
Our incrementals, which we typically range at 30%, 35% and it would have a similar effect you would expect to the 18% to 20% kind of EBITDA margin that we've targeted for 2025.
Okay. Thanks for that Bob.
Something you've done before.
I'd like to ask you again about titanium trends.
Specifically could you talk a bit about share gains orders, where lead times are and if possible pricing.
<unk>.
And that's because some of the comments you've made previously I think about not taking on dilutive work. So any color you could provide on titanium trends would be helpful. Thanks.
Alright, well thanks rich.
Certainly dominating our lives these days as we ramp up and increase our capacity and Debottleneck and so actually because of the improvements we've been making we've actually been able to I'll call. It lower the bar in terms of what's accretive right. We actually have more access to more accretive business going forward because of the <unk>.
Improvements that we've made so some of the historical paradigms have actually moved away from us opening up a bigger access but to your point, let's use that the $1 $2 billion that we announced is kind of a baseline for share gains I would say the split of that is about two thirds titanium and one third Nicole.
Roughly the $1 2 billion.
And the titanium is clearly a result of taking share based on the world's adjustments post Ukrainian invasion by Russia right. So that's that's the lion's share of it.
Third a nickel was actually share we picked up through the quality and performance versus our customers, but you were asking more about the titanium side. So share gains pretty aggressive we are seeing benefits of that in 2023, but we're not quantifying it but by 2024, we'll see a pretty big.
Dart there with lots of titanium share gains.
In terms of.
Lead times.
<unk> of our backlog that 20% rise we've seen in the backlog I would say, we said a couple of quarters ago that if anybody who is trying to order titanium and the long term they should get their contracts and that's what we've seen heavy contract load. So like titanium bar orders are out Q4 2024.
Titanium plates, probably depending on the customer and these commitments that we picked up in titanium Q.
Q3, 2024, maybe even into 2025 for some products.
If you wanted to just kind of some transactional business.
Maybe we have some opportunities in Q2 of 2024, but that's kind of where the market is its extended and.
As we start up with 34th Avenue Albani facility. We've got a few slots left in late 2023, but they are they are starting to get pretty sparse. So I think from a lead time perspective, hopefully that helps on titanium and then on the pricing side.
I think it's definitely been a seller's market I think people are trying to get their supply secure and reliable.
I do think we're getting value for the reliability and quality, but in terms of pricing I would say.
We're saying <unk>.
Appropriate increases for where we are in this stage in the market.
I think that was your list, but there's always like six questions in there Richard I, hopefully hopefully I got them all.
Alright.
I'd just like to go for efficiency, Thanks, Bob Alright.
We do too thank you.
Thank you. Our next question comes from Seth Jason from J P. Morgan. Your line is now open. Please go ahead.
Okay.
Thanks, very much and good morning.
For our firm.
First question I wanted to ask about <unk>.
The strong margins, we saw in the quarter and the degree to which mix may have played a role there I saw the engie.
Engine sales looked like they picked up again sequentially are there particular products that you started to sell in the quarter.
That contributed to the profitability in Q2 and.
How does that factor in going forward. If it did in fact have any impact.
Oh, that's a good question Seth good morning, I think the from a mix perspective.
I would say our comment about hitting our stride as probably the biggest issue has probably had a slightly larger mix of.
Ingot, billet and bar, which.
Some of our great.
Great products I think we're also seeing some of the isothermal forgings kind of picking up I wouldn't say, we've seen the start of the wide body recovery per se, but.
Those are the kind of products that end up.
Heading towards the wide body market, so I would say.
Modest mix I would say a lot of it is volume revenue and efficiencies that come with that and.
The price with these contract upgrades have been positive. So yes, I think those are probably the big ones that did you have any color you wanted to add I think for context.
As you think about the $28 million increase in our sequential EBITDA and that nice expansion on the margin.
As you look at it Bob you're absolutely right. It was really all about volume and it was price slash mix, but if you wanted to get a sense as to which of those two really drove it was.
Kind of probably two thirds price mix, driven and about a third related to volume so really nice overall contribution to that growth from.
From them from demand really.
Great Great. Thank you and then maybe as a follow up just looking at <unk> and thinking about.
Some of the non A&D demand headwinds.
But that segment thesis it in the end markets.
I guess, how do we think about where.
Where that is is it did you kind of end the quarter, where things are where the demand signals, we're still kind of on the way down and how did you account for that in terms of the.
The EBITDA that you expect from me and asked for for the rest of the year or are we looking at something that's a little bit more stable.
Yes. Good question something we are looking at all the time. So I will go back to it's really about 15% of this segment give or take most of the industrial markets Youre talking about.
I'd say, we'll see a little bit more decline in Q3 stabilizing into Q4 before recovering in Q1, that's a transitory issue I think driven by.
Two things three things, perhaps one is obviously the industrial markets appliances.
Some of the food and beverage tech stuff that we supply into and then some of the remnant automotive businesses. So those kinds of things, it's really the industrial markets being down.
We also tend to see a lot of these products or some of these products going through the distribution channel and if youre familiar with the distribution channel win.
Oems take a breath just to make sure. The economy is going in the right place the distribution channel tends to take two breaths kind of exacerbate some of that decline, but we do see it as solid.
Through.
Are stabilizing in the back half and then.
Moving up in Q1 of next year and it's also we're seeing a little on the energy side. If you'll go back to May when oil prices dropped quickly nickel prices followed they have now recovered when that happens the epc's or Oems take a breath as well and say well, let's just wait and see.
We expect those those are kind of chunky program or project orders that will come back later in the year for probably H one of 2024 shipments so it's kind of.
The general industrial markets, the chunky notes of energy with a little volatility there, but the bottom line is the solid business that we have they're heavy and increasing aerospace and defense certainly mid to high teens EBITDA by 2025, and it's definitely our target and we see that.
One way to be there, but I think we're just going through what everybody else is saying even the reports you guys put out we actually read though it looks like this is kind of.
Different spots in different channels, where the economics are kind of floating around and given people pause, but think of it as stabilizing in Q4 and then.
Come back in Q1.
Excellent that's helpful. Thanks very much.
Thank you. Our next question comes from David Strauss from Barclays. David Your line is now open. Please go ahead.
Hi, Good morning, it's actually Josh corn on for David.
Wanted to ask how youre thinking about nickel pass through and pension relative to the longer term 2025 targets. Thanks.
Sure sure.
I would say is as you think about those 2025 targets, we shape those targets assuming flat metal prices. So that answers kind of the pass through of assumption that you are talking about right now and we saw this in 2022 as well we've seen some elevated metal prices, which is elevated pass through and Sir.
Charges well when it comes to those 2025 targets, we're not assuming that those higher metal prices and that higher pass through revenue are going to continue to be with us. So.
That's.
It's at the moment a bit of a headwind to our margins.
But we don't expect that that headwind is going to continue to be with us.
2025 and.
In terms of pension the simplest way to think about it is that we saw overall about a $36 million increase in pension expense. This is noncash, but at $36 million increase in pension expense in 2024.
Shared with you guys in the past I do not expect that that additional expense is going to be with us in the long term. It is not assumed to be in those 2025 targets. So that would indicate I don't expect it to be with us and after 2025. So that will help you as you are thinking about bridging from current performed.
Thats two to 2025 with the increased profitability as well as expanding margins.
Does that answer your question.
Okay.
Yes. Thank you and then just did the <unk>.
Recent drop in nickel prices over the last couple of months negatively impacted the results in Aaas at all in the quarter.
Yes. The short answer is yes. So there was a modest pullback on metal prices and the way our business is constructed and contracted what when metal prices go up generally that's a good guy for us when metal prices go the other direction Thats generally a headwind for us so as you think about it.
S business.
In terms of those headwinds it was probably.
$2 $5 million EBITDA, something like that $2 million to $3 million and try to get super precise on that but it's probably $2 million to $3 million of headwind in Q2 that we.
We would expect would turnaround.
We've already seen metal prices.
Recovering in early Q3, and and so that should be a good guy for us.
As we look out to the rest of the year.
Okay. Thank you.
Thank you. Our next question comes from Gautam Khanna from TD Cowen. Your line is now open. Please go ahead.
Okay.
Hi, good morning, guys.
Good morning.
Bob based on your comments on the.
The new business, the 140 ish million annually, two thirds of which is titanium. So you got about $100 million of new titanium business.
I was curious does that.
Pretty much exhaust all the opportunity of folks switching away from <unk> or do you think there's still a lot of headroom left to get.
Additional share I'm just curious how your discussions are yes.
Largely concluded are still.
Still going on yeah.
It's a never ending process for sure, but I got it got it gets you to put a new number on your pad you got to think about $200 million of new business of which 140 is incremental to what we said before right. So just just to make sure I got the same numbers I think yeah. So I think the.
The other part of your question.
I think that.
Those are we're seeing orders against those commitments is what I would say, which is whats driving our lead times out.
I think the.
From our all the contract commitments done I would say no. There's still a couple of big ones that are out there.
They don't all expire at the same time, so probably.
Renewal points, probably 2026.
Orders and beyond so yes.
As the wide body comes back people are reassessing are assessing where they need to be for the long term. So there is a couple of those.
In terms of so it doesn't exhaust the opportunities I think.
When we see opportunities to pick up.
Sure.
I would call it lack of performance by other industry participants.
That'll be a real concern of the Oems on the airframe side and definitely on the engine side. So.
Thank you exhaust the opportunity.
I think we're going to have probably the best titanium capacity situation for the emerging opportunities that come not overcapacity is by any stretch, but we still see.
Quite a bit of upside as well.
That's the wide body market continues to.
To recover and I think theres, probably some new product opportunities there as well and then lastly, we're always.
Using the 80 20 kind of market optimization, so where we have opportunities. We clearly continue to prioritize so I think that's another upside for us in terms of how the mix can still be adjusted.
Did that answer your question John did I get them all.
Yeah, I think you did just to be clear so I understand it better.
In terms of.
Contract share opportunities those are the emergent ones will be against.
Supplier competitors that aren't doing as well, but in terms of like big opportunities to kind of.
Reset share is that 2026 for the next big ones or is that just want to make sure I understood that.
Yeah. So so we've got the $1 2 billion, we will start to see the benefit of that in 2024, right and then.
The next ones you were asking if it was exhausted and I would say no. It is not exhausted, but the next real opportunity for upscaling would be shipments in 2026.
And that's just a matter of the timing of some of the customer schedules and where they sit in their renewal process.
I do think there's opportunity.
That's very helpful and then.
You guys have talked about seasonality Q3 seasonal maintenance.
Could you articulate what.
The sequential EBIT impact is to HPLC from that.
And just if you could reflect on Q1's HPLC performance relative to Q2, because it looked like.
In Q1, the throughput wasn't.
As strong as it could have been it was backend loaded in the quarter.
Did all of those issues kind of resolved.
And therefore, we had a very clean Q2 or is there still opportunity.
That was on the table in Q2.
Sure. This is.
John Let me take a run at.
Yes, So let me take a run at that.
So.
First of all.
In terms of the let me answer the second question first in terms of the Q1 to Q2 performance furnish PMC.
It was really about <unk>.
Volume and price slash mix right. So.
Some of the bottlenecks that we were seeing in the business.
Were resolved in Q2 that released.
What had been some constraint in HPLC.
We got through Q2 are there more opportunities for that yes, we believe so quite strongly actually and part of that has to do with the work that's being done around our work management and capital flows the inventory flows in the business really.
Proving that throughput, which will have a positive effect on sales and profit and profitability et cetera. In addition to that Jim and the operating teams are doing a phenomenal job identifying operational efficiencies and those are opportunities existing not just for <unk>, but also for the E&S business units and so we can see.
Over time that those will be additive to the performance in our business.
To answer the question in terms of how to think about the seasonal outages that we talk about for Q3.
Not much of that is really related to H P&C. So I wouldn't expect to see any significant pullback in terms of performance in <unk> in Q3.
So that outage the outages are scheduled in Q3 and as the way to think about Dimensionalize or think in terms of its probably $8 million to $10 million of effect to the performance and if you do the math on the EPS dropped from Q2 to Q3 Youll see.
That.
Kind of a general direction of.
<unk>.
That increased spend being reflected in Q3 performance now theres some offset CNN.
And then the math when you run the numbers, obviously were expecting the A&D performance too, especially in that H BMC side of the business to continue to perform well.
And so that helps to offset some.
Some of that outage costs.
And then of course as you saw in our Q4 indications that we're expecting.
A nice breakout quarter in Q4 based upon getting out of those outages continued A&D strength et cetera et cetera.
Excellent. Thank you so much.
You bet.
As a reminder, if you'd like to ask a question. Please press star followed by one on your telephone keypad.
Our next question comes from Timna Tanners from Wolfe Research your.
Your line is now open.
Thank you and good morning, everyone.
I just had two questions remaining.
Looking at my notes and you had said that you expected the China hit the disappointment in China to be a first half story with the stabilizing or improving in second half. So is this is this a change to that and what's embedded in your guidance now is that just assuming kind of soft conditions continue in China or anything you can clarify that would be.
Great.
Yes. So if this is if this lacks clarity then please let me know timna. So you're absolutely right. When we were entered into 2023, we saw slowness carried over on related to that precision rolled strip business and our expectations.
Where that that slowness would recover in the second half we have not seen recovery in this precision rolled strip business and so what we've assumed in the guidance is that the performance in Q2 off of that Prs business will continue through the second half of the year.
If there is a recovery obviously, that's an upside to our guidance.
Okay helpful. Thank you and then a random question, perhaps but I know used to be a big player in the electrical steel market and that's been really really strong I'm. Just wondering if it would even be possible to return to producing much electrical steel whether it be non greener grain oriented my understand is those margins have exploded over the last couple of years and demand.
<unk> is expected to be strong. So just wondering if thats possible and if you would think about it. Thanks again.
Yes fair question.
I always like clear concise answers like you do Timna, which is no we're not get back into that business.
We made a decision back in 2015 2016 based on the assets, we had at the time to devote our capital allocation strategy towards aerospace and defense and that's what we're still doing.
We do see opportunities I would say in the magnetic alloys, so alloy differentiation.
We're there.
We see very good product opportunities and we see technology differentiating, but in terms of the historical electrical steels, our grain oriented electrical steels.
Nope, we're done.
Okay. Thank you.
Thank you there are no further questions on the line. So I'll now hand back to David Gladstone for any closing remarks.
Okay.
Thanks again for joining US today. This concludes today's ATI second quarter 2023 earnings call a replay will be available on our website. Thank you and have a good day.
This concludes today's conference call everybody. Thank you very much for joining you may now disconnect your lines.
Thank you and have a good day.
This concludes today's conference.