Carpenter Reports Difficult Start to Q3 but Improvement Seen
10/27/2014 - Carpenter Technology Corp. announced financial results for the quarter ended 30 September 2014.
Carpenter reported net income of US$13.5 million or US$0.25 per diluted share, compared to US$34.6 million or US$0.65 per diluted share in the same quarter last year.
Financial Highlights
William A. Wulfsohn, Carpenter’s president and chief executive officer, stated: “After a difficult start to the quarter, performance in September improved. The Latrobe press is now back on-line and we saw our Specialty Alloys Operations (SAO) segment mix improve in September. That said, we need to drive further improvements and successfully work through recent challenges at our Reading mill.
“Looking forward, we expect SAO to continue year-over-year volume growth as we expand the number of customer approvals for Athens production. We also anticipate that SAO’s sales mix will improve based on recent trends in our backlog. In addition, the Performance Engineered Products (PEP) segment is expected to improve year-over-year. Finally, we remain focused on keeping our selling, general and administrative expenses flat. These are the crucial building blocks in terms of driving profitable growth as we progress through our fiscal year.
“We have now completed the majority of our spending related to capacity expansion, and we are committed to driving returns on these investments. We have a strong focus on cash generation, and we are also committed to reduce inventory from current levels by the end of the fiscal year. While we have multiple strategic options to deploy this cash, as well as a strong balance sheet, our recently authorized share repurchase program gives us an important option to return future cash flow to our shareholders.”
Net Sales, Operating Income, and Net Income
Net sales for the first quarter of fiscal year 2015 were US$549.8 million, and net sales excluding surcharge were US$440.1 million, an increase of US$28.0 million (or 7%) from the same quarter last year, on 11% higher shipments.
Operating income was US$22.1 million, a decrease of US$33.7 million from the first quarter of the prior year. Operating income—excluding pension earnings, interest and deferrals (EID)—was US$24.5 million, a decrease of US$37.3 million (or 60%) from the first quarter of the prior year. The reduction in operating income versus the prior year is primarily due to the operational issues experienced in the first two months of the current quarter, weaker mix and additional Athens depreciation expense.
Net income was US$13.5 million or US$0.25 per diluted share, as compared to US$34.6 million or US$0.65 per diluted share in the same quarter last year. The results for the first quarter of fiscal year 2015 include a favorable legal settlement of US$4.4 million or US$0.05 per share, reported in other income, net.
Cash Flow
Cash flow from operations was US$15.0 million, which included a US$42.6 million increase in working capital and US$2.8 million of pension contributions. This compares to a cash flow from operations of US$39.5 million in the prior year’s first quarter, which included a US$37.7 million increase in working capital and US$1.5 million of pension contributions. Free cash flow in the first quarter was negative US$53.5 million, compared to negative US$60.5 million in the same quarter last year. Capital spending in the first quarter, which included US$32.3 million related to the construction of the Athens facility, was US$59.0 million, compared to US$90.4 million in the prior year’s first quarter, which included US$67.4 million related to Athens.
Total liquidity, including cash and available revolver balance, was US$558 million at the end of the first quarter. This consisted of US$66 million of cash, and US$492 million of available revolver.
End Markets
* Excludes sales through Carpenter’s distribution businesses
Aerospace and Defense
Financial Highlights
| (US$ in millions) | Q1 | Q1 | Q4 | ||||||||||||||
| FY2015 | FY2014 | FY2014 | |||||||||||||||
| Net Sales | US$ | 549 | .8 | US$ | 498 | .6 | US$ | 604 | .6 | ||||||||
| Net Sales Excluding Surcharge (a) | US$ | 440 | .1 | US$ | 412 | .1 | US$ | 488 | .9 | ||||||||
| Operating Income | US$ | 22 | .1 | US$ | 55 | .8 | US$ | 59 | .2 | ||||||||
| Net Income | US$ | 13 | .5 | US$ | 34 | .6 | US$ | 38 | .1 | ||||||||
| Free Cash Flow (a) | US$ | (53 | .5) | US$ | (60 | .5) | US$ | 34 | .9 | ||||||||
| Adjusted EBITDA (a) | US$ | 63 | .9 | US$ | 97 | .5 | US$ | 105 | .2 | ||||||||
“Looking forward, we expect SAO to continue year-over-year volume growth as we expand the number of customer approvals for Athens production. We also anticipate that SAO’s sales mix will improve based on recent trends in our backlog. In addition, the Performance Engineered Products (PEP) segment is expected to improve year-over-year. Finally, we remain focused on keeping our selling, general and administrative expenses flat. These are the crucial building blocks in terms of driving profitable growth as we progress through our fiscal year.
“We have now completed the majority of our spending related to capacity expansion, and we are committed to driving returns on these investments. We have a strong focus on cash generation, and we are also committed to reduce inventory from current levels by the end of the fiscal year. While we have multiple strategic options to deploy this cash, as well as a strong balance sheet, our recently authorized share repurchase program gives us an important option to return future cash flow to our shareholders.”
Net Sales, Operating Income, and Net Income
Net sales for the first quarter of fiscal year 2015 were US$549.8 million, and net sales excluding surcharge were US$440.1 million, an increase of US$28.0 million (or 7%) from the same quarter last year, on 11% higher shipments.
Operating income was US$22.1 million, a decrease of US$33.7 million from the first quarter of the prior year. Operating income—excluding pension earnings, interest and deferrals (EID)—was US$24.5 million, a decrease of US$37.3 million (or 60%) from the first quarter of the prior year. The reduction in operating income versus the prior year is primarily due to the operational issues experienced in the first two months of the current quarter, weaker mix and additional Athens depreciation expense.
Net income was US$13.5 million or US$0.25 per diluted share, as compared to US$34.6 million or US$0.65 per diluted share in the same quarter last year. The results for the first quarter of fiscal year 2015 include a favorable legal settlement of US$4.4 million or US$0.05 per share, reported in other income, net.
Cash Flow
Cash flow from operations was US$15.0 million, which included a US$42.6 million increase in working capital and US$2.8 million of pension contributions. This compares to a cash flow from operations of US$39.5 million in the prior year’s first quarter, which included a US$37.7 million increase in working capital and US$1.5 million of pension contributions. Free cash flow in the first quarter was negative US$53.5 million, compared to negative US$60.5 million in the same quarter last year. Capital spending in the first quarter, which included US$32.3 million related to the construction of the Athens facility, was US$59.0 million, compared to US$90.4 million in the prior year’s first quarter, which included US$67.4 million related to Athens.
Total liquidity, including cash and available revolver balance, was US$558 million at the end of the first quarter. This consisted of US$66 million of cash, and US$492 million of available revolver.
End Markets
|
Q1 FY15 Sales* Ex. Surcharge (in Millions) |
Q1 FY15 vs. Q1 FY14 |
Q1 FY15 vs. Q4 FY14 |
||||||||||
| Aerospace and Defense | US$180.7 | -1% | -15% | |||||||||
| Energy | US$67.8 | +15% | -8% | |||||||||
| Medical | US$26.7 | +7% | -5% | |||||||||
| Transportation | US$30.7 | +20% | -8% | |||||||||
| Industrial and Consumer | US$98.6 | +15% | -8% |
Aerospace and Defense
- Lower demand for certain high-value engine and defense related materials led to lower sales and a weaker overall mix year-over-year.
- Demand is seen returning in the aerospace distribution market but at lower average selling prices versus the prior year.
- Revenue for aerospace engine materials was up 5%, and revenue for fastener materials (titanium and nickel) was up 9%, year-over-year.
- The directional rig count grew 13% versus the same quarter last year.
- Amega West posted solid revenue growth in both manufacturing and rental compared to the prior year.
- The power generation market segment showed strong growth in the quarter versus the prior year and sequentially.
- Revenue improved year-over-year but had a weaker mix, while titanium revenue was down and stainless instrument revenue was up.
- Original equipment manufacturers (OEMs) have resumed more normalized buying patterns as inventories have stabilized.
- The medical market environment remains extremely competitive with significant pricing pressure.
- North American vehicle production is up year-over-year and remains at high levels.
- Sales mix has improved versus the prior year, with the shift to higher value components for more demanding applications going into high-pressure/high-temperature engine systems.
- Demand growth in the consumer market segment is being driven by high-value consumer electronics and sporting goods applications.
- Strong year-over-year revenue growth in the semiconductor market segment.
- Steady demand growth for premium tool steels.
