Titanium Metals Posts Strong Earnings on Lower Metal Cost

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Net earnings of Titanium Metals Corporation (TIE) exceeded to $23 3 million or 13 cents per share in the fourth quarter of 2010 from last year’s $4.9 million or 3 cents. The robust growth in earnings came from lower raw materials costs, principally titanium sponge and scrap.

In fiscal 2010, net income came in at $80.6 million or 45 cents per share compared with $34.3 million or 19 cents per share in fiscal 2009.

However, quarterly revenues of $217.3 million increased 18.4% year over year. In fiscal 2010, revenues surged 10.7% year over year to $857.2 million. The revenue increase was attributable to increased volumes, partially offset by lower average selling prices during 2010. Shipment volumes increased particularly for melted titanium products backed by improving demand from the commercial aerospace sector. Average selling prices decreased for both melted and mill products from 2009 to 2010, primarily driven by annual pricing adjustments under long-term customer agreements, lower spot market prices and the relative mix of products sold during the fourth quarter and the full year.

Melted product shipments of 1,450 metric tons reflected a two-fold increase from last years’ shipments of 835 metric tons. Average selling price, however, plunged 2.6% to $20.95 per kilogram. Milled products shipments of 3,175 metric tons were up from 2,645 metric tons while product prices moved down to $54.15 per kilogram from $56.25 in the fourth quarter of 2009.

Operating income increased a record 264.5% year over year to $33.9 million driven by lower cost of raw materials, principally titanium sponge and scrap, and the benefit of higher utilization of production capacity. Gross margin was 23.3% in the fourth quarter 2010 versus 13.4% in the prior-year quarter.

Financial View

Titanium Metals boasts of a debt free status. The company generated operating cash flows of $82.9 million and recorded cash and cash equivalent of $283.4 million as of December 31, 2010.


Management expects 2011 to be comparable with 2010 results and believes that focus on titanium metals and specialty titanium alloys for the aerospace industry, especially for jet engine applications, continues to provide a competitive advantage in the light of the favorable long-term outlook for aerospace. Management anticipates average selling prices and unit costs to remain relatively consistent with 2010, with some variability from product mix.

Zacks Recommendation

Titanium Metals is the world's largest supplier of high quality titanium metal products. Given the company’s strong year-over-year results, rising titanium demand, operational efficiency, lower cost of raw materials and expanding market share, we remain positive on the Titanium Metals in the near term. We expect a strong pick-up in titanium demand in 2011 driven by higher defense spending from government.

Titanium is generating significant cash flow and has maintained a debt-free status since 2009. We also remain optimistic on the long-term outlook of the aerospace industry, which is focusing on fuel-efficient aircraft requiring a higher proportion of titanium metal. However, Titanium Metal is exposed to falling titanium spot prices and fiscal 2011 is expected to be a tough year for Titanium as average selling prices appear to be meaningfully low due to competitive pricing.

Currently, Titanium Metals holds a short-term (1 to 3 months) Zacks #4 Rank (Sell), but a long-term (6 months and higher) Neutral recommendation.