Carpenter Lowers Outlook, Announces Closure of UK Strip Facility
03/23/2009 - Carpenter Technology revises its sales and operating margin expectations for the second half of its fiscal year downward, as it also announces closure of its Crawley, U.K., metal strip manufacturing facility as part of an overall plan to reduce fixed costs and optimize capacities.
Carpenter Technology Corp. is revising its sales and operating margin expectations for the second half of its fiscal year downward, estimating that revenues (excluding raw material surcharges) would be 20 to 25% lower than the second half of FY2008 with low double-digit operating margins. Carpenter has also adjusted its overall outlook downward for the remainder of its fiscal year.
The company also announced plans to close its Crawley, U.K., metal strip manufacturing facility as part of its overall plan to reduce fixed costs and best utilize production capabilities. Operations at the facility are to wind down during the next several months with final closure targeted for June 30, 2009.
“Revenue declines, excluding the impact of raw material surcharges, are expected to be at the low end of the 20-25% range we previously projected for the third quarter,” said Anne L. Stevens, Chairman and CEO. “Based on our current view of end market conditions and customer inventories through the end of our fiscal year, revenues will likely decline further, resulting in a fourth quarter operating loss.”
Stevens said third-quarter operating performance showed improvement in a number of areas, and management continued to reduce expenses and adjust manufacturing costs to the lower production levels. “However, the combination of lower volume and aggressive actions being taken to reduce our second half inventory levels have hurt our margins more than previously expected,” said Stevens. “These, together with costs associated with closing the U.K. facility, will likely result in a third-quarter operating margin below our prior estimate.”
“In the 4th quarter, we expect to report an operating loss due to the higher impact of the U.K. facility closing costs, and increasing effects from the lower volume and accelerated inventory reduction activities on operating inefficiencies and accounting effects under LIFO.”
Stevens said the company has moved aggressively to reduce overhead and discretionary costs, and drive actions on labor and other manufacturing costs to respond to the lower volume level. “Still, the fixed portions of our cost structure combined with the aggressive reductions in inventory levels are having a particularly negative impact on profit in the second half.”
Carpenter continues to preserve its strong balance sheet and to focus on its cash position. “We are reducing our costs everywhere we can, lowering inventory levels and cutting back on capital expenditures. Our objective continues to be to generate positive free cash flow for this fiscal year,” Stevens said.
Closure of the U.K. strip operation is expected to have a one-time profit impact of approximately $8 million. The cash cost of the shutdown is projected to be $2 million, which should be offset next year by expected savings from the closure. Part of the charges associated with the plant closing are to impact the third fiscal quarter, with the majority of the costs affecting fourth-quarter results.
Carpenter Technology produces and distributes specialty alloys, including stainless steels, titanium alloys and superalloys, and various engineered products. The company’s U.K. facility, which employs 33 workers, manufactures soft magnetic nickel-iron and cobalt-iron alloys in strip and bar form.
