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Allegheny (ATI) to Further Restructure FRP Operations

Allegheny Technologies Inc. ATI has declared further restructuring of its Flat Rolled Products (FRP) operations. The company announced that it will cut around one-third of FRP’s salaried workforce by removing 250 employees from their positions. This reduction is expected to be complete by the end of second-quarter 2016.

Owing to these actions, Allegheny will record a $9 million severance charge in its first-quarter 2016 results. These actions are expected to deliver annualized cost savings of more than $30 million from the third quarter of 2016 onward.

The company is taking this step to return the FRP business to profitability and to ensure sustainable long-term profitable growth. Per management, when there is considerable overcapacity for products such as commodity stainless steel sheet and grain-oriented electrical steel (GOES), it becomes difficult for a U.S. company to remain competitive.

Allegheny’s Midland, PA stainless steel facility has been idled to curtail the company’s exposure to commodity stainless steel sheet. It’s GOES operation will be idled this month. Allegheny is thus taking these restructuring measures to help secure the future of ATI FRP.

The company aims at creating a FRP business that will focus on products and markets with significant technical barriers to entry. The company expects the FRP business to be moderately profitable in the second half of 2016.

Allegheny continues to see certain challenges in its core FRP segment. Revenues at this segment tumbled roughly 50% year over year in fourth-quarter 2015, hurt by weak market conditions, lower sales for all major products as well as reduced selling prices for standard stainless and high-value products.

Allegheny currently carries a Zacks Rank #4 (Sell).

Other companies worth considering in the basic materials sector are Companhia Siderurgica Nacional SID, AK Steel Holding Corp. AKS and Schnitzer Steel Industries, Inc. SCHN. Each of these stocks holds the Zacks Rank #2 (Buy).

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