Carpenter Reports Improving Quarterly Results
07/30/2014 - Carpenter Technology Corporation announced financial results for the quarter ended 30 June 2014.
Carpenter reported net income of US$38.1 million or US$0.71 per diluted share, compared to US$40.9 million or US$0.77 per diluted share in the same quarter last year.
“The Carpenter team drove significant strategic and financial gains in the quarter,” said William A. Wulfsohn, president and chief executive officer. “Our Specialty Alloys Operations (SAO) segment grew revenues, excluding surcharge, by 5% on 4% higher volume versus the third quarter, reflecting an improving mix. SAO also continued to reduce its manufacturing cost per ton. Our Performance Engineered Products (PEP) segment grew revenues, excluding surcharge, by 5% sequentially, while continuing to drive a richer product mix and improve its manufacturing processes. Overall Company earnings and margins improved sequentially from the third quarter and we moved to positive free cash flow as capital spending on our Athens facility ramps down.
“Looking forward, our visibility has improved as our SAO sales backlog is up 32% versus the prior year. Our first quarter of fiscal year 2015 will be challenging as we expect normal seasonality combined with a mix similar to our fourth quarter of fiscal year 2014. We expect to see the impact of our price increases and mix improvement actions beginning in the second quarter of the fiscal year.
“Our new Athens facility remains critical to supporting our targeted earnings growth during the remainder of fiscal year 2015 and beyond. We produced 1,000 tons of saleable product in the fourth quarter and are making significant progress obtaining internal and customer qualifications. These qualifications are critical to enable us to support our growing demand with Athens’ capacity. As we progress through the year, we expect the Athens facility to enable us to ship higher volumes, with a richer mix, at a lower cost per ton. The timing of the facility start-up appears good as we are seeing demand for our premium and ultra-premium products growing. The potential of Athens, combined with our strong market positions, solid balance sheet and growing backlog, points to a bright future for Carpenter.”
Net Sales and Operating Income
Net sales for the fourth quarter of fiscal year 2014 were US$604.6 million, and net sales excluding surcharge were US$488.9 million, a decrease of US$7.7 million (or 2%) from the same quarter last year, on 7% higher shipments.
Operating income was US$59.2 million, a decrease of US$6.2 million from the fourth quarter of the prior year. Operating income—excluding pension earnings, interest and deferrals (EID)—was US$65.2 million, a decrease of US$8.1 million (or 11%) from the fourth quarter of the prior year. The lower operating income largely reflects a weaker product mix and higher Athens depreciation versus the prior year fourth quarter.
Cash Flow
Cash flow from operations in the fourth quarter of fiscal year 2014 was US$95.5 million, which included a US$23.8 million decrease in working capital and US$1.7 million of pension contributions. This compares to a cash flow from operations of US$179.2 million in the prior year’s fourth quarter, which included a US$122.5 million decrease in working capital and US$1.6 million of pension contributions. Free cash flow in the fourth quarter was US$34.9 million, compared to US$61.3 million in the same quarter last year. Capital spending in the fourth quarter, largely related to the construction of the Athens facility, was US$51.0 million, compared to US$109.1 million in the prior year’s fourth quarter.
Total liquidity, including cash and available revolver balance, was US$612 million at the end of the fourth quarter. This consisted of US$120 million of cash and US$492 million of available revolver.
* Excludes sales through Carpenter’s distribution businesses
Aerospace and Defense
Year-over-year volume and revenue growth was driven by:
Demand for Carpenter materials continues to be strong in:
| Financial Highlights | ||||||||||||||||||
| (US$ in millions) | Q4 | Q4 | Q3 | YTD | YTD | |||||||||||||
| FY2014 | FY2013 | FY2014 | FY2014 | FY2013 | ||||||||||||||
| Net Sales | US$ | 604.6 | US$ | 611.8 | US$ | 566.3 | US$ | 2,173.0 | US$ | 2,271.7 | ||||||||
| Net Sales Excluding Surcharge (a) | US$ | 488.9 | US$ | 496.6 | US$ | 467.2 | US$ | 1,782.8 | US$ | 1,839.3 | ||||||||
| Operating Income | US$ | 59.2 | US$ | 65.4 | US$ | 49.5 | US$ | 212.0 | US$ | 232.7 | ||||||||
| Net Income | US$ | 38.1 | US$ | 40.9 | US$ | 30.6 | US$ | 132.8 | US$ | 146.1 | ||||||||
| Free Cash Flow (a) | US$ | 34.9 | US$ | 61.3 | US$ | (22.2 | ) | US$ | (147.8 | ) | US$ | (159.3 | ) | |||||
| Adjusted EBITDA (a) | US$ | 105.2 | US$ | 109.5 | US$ | 92.0 | US$ | 381.8 | US$ | 405.6 | ||||||||
“The Carpenter team drove significant strategic and financial gains in the quarter,” said William A. Wulfsohn, president and chief executive officer. “Our Specialty Alloys Operations (SAO) segment grew revenues, excluding surcharge, by 5% on 4% higher volume versus the third quarter, reflecting an improving mix. SAO also continued to reduce its manufacturing cost per ton. Our Performance Engineered Products (PEP) segment grew revenues, excluding surcharge, by 5% sequentially, while continuing to drive a richer product mix and improve its manufacturing processes. Overall Company earnings and margins improved sequentially from the third quarter and we moved to positive free cash flow as capital spending on our Athens facility ramps down.
“Looking forward, our visibility has improved as our SAO sales backlog is up 32% versus the prior year. Our first quarter of fiscal year 2015 will be challenging as we expect normal seasonality combined with a mix similar to our fourth quarter of fiscal year 2014. We expect to see the impact of our price increases and mix improvement actions beginning in the second quarter of the fiscal year.
“Our new Athens facility remains critical to supporting our targeted earnings growth during the remainder of fiscal year 2015 and beyond. We produced 1,000 tons of saleable product in the fourth quarter and are making significant progress obtaining internal and customer qualifications. These qualifications are critical to enable us to support our growing demand with Athens’ capacity. As we progress through the year, we expect the Athens facility to enable us to ship higher volumes, with a richer mix, at a lower cost per ton. The timing of the facility start-up appears good as we are seeing demand for our premium and ultra-premium products growing. The potential of Athens, combined with our strong market positions, solid balance sheet and growing backlog, points to a bright future for Carpenter.”
Net Sales and Operating Income
Net sales for the fourth quarter of fiscal year 2014 were US$604.6 million, and net sales excluding surcharge were US$488.9 million, a decrease of US$7.7 million (or 2%) from the same quarter last year, on 7% higher shipments.
Operating income was US$59.2 million, a decrease of US$6.2 million from the fourth quarter of the prior year. Operating income—excluding pension earnings, interest and deferrals (EID)—was US$65.2 million, a decrease of US$8.1 million (or 11%) from the fourth quarter of the prior year. The lower operating income largely reflects a weaker product mix and higher Athens depreciation versus the prior year fourth quarter.
Cash Flow
Cash flow from operations in the fourth quarter of fiscal year 2014 was US$95.5 million, which included a US$23.8 million decrease in working capital and US$1.7 million of pension contributions. This compares to a cash flow from operations of US$179.2 million in the prior year’s fourth quarter, which included a US$122.5 million decrease in working capital and US$1.6 million of pension contributions. Free cash flow in the fourth quarter was US$34.9 million, compared to US$61.3 million in the same quarter last year. Capital spending in the fourth quarter, largely related to the construction of the Athens facility, was US$51.0 million, compared to US$109.1 million in the prior year’s fourth quarter.
Total liquidity, including cash and available revolver balance, was US$612 million at the end of the fourth quarter. This consisted of US$120 million of cash and US$492 million of available revolver.
| End Markets | ||||||
| Q4 FY14 | Q4 FY14 | Q4 FY14 | ||||
| Sales* | vs. | vs. | ||||
| Ex. Surcharge | Q4 FY13 | Q3 FY14 | ||||
| (in Millions) | ||||||
| Aerospace and Defense | US$212.2 | -7% | +5% | |||
| Energy | US$73.4 | -10% | +1% | |||
| Medical | US$28.0 | +6% | -1% | |||
| Transportation | US$33.5 | +20% | +10% | |||
| Industrial and Consumer | US$107.1 | +10% | +9% | |||
Aerospace and Defense
- Overall revenue declined year-over-year due to continued demand weakness for engine and defense materials.
- Titanium fastener revenue was up 6% year-over-year as demand continued to grow.
- Demand was stable for nickel fasteners and structural components.
- Carpenter continued to see weak demand in the power generation segment.
- While Amega West posted solid revenue growth in manufacturing and rentals versus the prior year and the directional rig count grew 9% versus the same quarter last year, Carpenter continued to see soft demand for materials used in oil well completions.
Year-over-year volume and revenue growth was driven by:
- Improving demand for orthopedic and surgical devices.
- A resumption of more normalized buying patterns by OEMs as inventories have stabilized.
- Increased distributor demand for titanium products.
- North American light vehicle sales are expected to remain at high levels.
- The richer mix is due to improved positioning in higher value internal engine components.
- Carpenter results continue to benefit from a strong demand for materials used in the next generation of fuel delivery systems.
Demand for Carpenter materials continues to be strong in:
- Plant and equipment applications
- Bridge infrastructure projects
- Semiconductor applications
