Carpenter Technology Corp. reported record net income of $40.1 million on record sales of $346.0 million for the first fiscal quarter of 2006 ended September 30, 2005. Carpenter says the results reflected robust conditions in the aerospace market, increased sales of higher value materials, and the benefits from the company's continued focus on lean and variation reduction.

The $40.1 million net income ($1.54 per diluted share) compares with net income of $19.8 million ($0.80 per diluted share) in the year-ago first quarter. Net sales, $346.0 million, compare with $297.6 million for the same quarter a year ago.

Free cash flow was $0.7 million, compared with free cash flow of $27.3 million in the year-ago first quarter. The lower free cash flow partially reflected investments in additional working capital required to support future sales. At September 30, 2005, net debt was $59.4 million or $144.4 million lower than a year ago.

Operating Summary — "We achieved a record first quarter as a result of favorable market conditions, particularly in aerospace, and our continued focus on operational excellence through lean and variation reduction," said Robert J. Torcolini, Chairman, President and CEO. "We are especially pleased to have achieved these results given the escalating costs of energy and the continued high prices of raw materials.

"Our business operating model, which focuses on the sale of higher value products and on reducing complexity through the elimination of marginally profitable products, has created significant operating leverage."

Carpenter's sales increased 16% compared to the year-ago first quarter, reflecting a better product mix, higher base selling prices and surcharges. Excluding surcharge revenue, sales increased 15% from the first quarter a year ago.

Sales increased in most major end-use markets compared to the year-ago first quarter. Aerospace market sales increased 48%, which reflected strong demand for premium alloys and ceramics used in the manufacture of jet engines and titanium used in the manufacture of structural components. Medical market sales increased 51% over the same period as a result of growth with key customers, international sales growth and increased selling prices.

Power generation market sales decreased 3%. However, excluding the sales of a divested business, power generation market sales increased 27% from the year-ago first quarter. The increase reflected higher selling prices, surcharges and marginally higher demand.

Sales to the automotive and truck markets were 8% higher due to base pricing actions, surcharges and increased demand for ceramic materials used in engine components for trucks. The sales growth was tempered by reduced shipments of specialty and stainless alloys.

Industrial market sales increased 4% primarily as a result of higher base prices, surcharges and the sale of higher-value materials to capital equipment manufacturers. The increased sales were partially offset by intentional reduction in the sale of marginally profitable products.

Sales to the consumer market decreased 9% from the year-ago first quarter. Reduced sales of materials used in consumer durable goods and reduced shipments of marginally profitable products accounted for a majority of the change.

Geographically, sales outside the United States increased 27% from a year ago, representing 30% of first quarter sales. Sales outside the United States benefited from strength in the European aerospace and medical markets.

Carpenter's gross profit increased to $91.7 million (26.5% of sales) from $63.4 million (21.3% of sales) in the year-ago quarter. The 520 basis point increase in the gross profit margin reflected a better product mix due to increased sales of higher-value materials, notably to the aerospace, medical, and power generation markets, and higher base prices. Margins also benefited from lean initiatives, variation reduction and the intentional reduction in the sale of marginally profitable products.

Selling and administrative expenses were $28.0 million (8.1% of sales) compared to $27.7 million (9.3% of sales) in the same quarter a year ago.

Carpenter's operating income increased to $63.7 million (18.4% of sales) from $35.7 million (12.0% of sales) a year ago. The increase reflected the improvement in gross profit and a continued focus on managing selling and administrative expenses.

Outlook — "The strength of the recovery in the aerospace market should continue to drive demand for our premium alloys, titanium and ceramic materials," Torcolini said. "We are leveraging these opportunities by improving the fundamentals of our business by pricing products for the value delivered, reducing complexity through product mix management and by focusing on lean and variation reduction.

"Based on current market conditions and our operational effectiveness initiatives, we expect to achieve another record year."

Accordingly, Carpenter is now raising its free cash flow expectations for fiscal 2006 to be in excess of $125 million. The company previously estimated that free cash flow would be in excess of $100 million.

Carpenter produces and distributes specialty alloys, including superalloys, stainless steels, titanium alloys, and various engineered products.