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Carpenter Technology Reports 1st Quarter Results
11/04/2009 - Carpenter Technology reports a net loss of $9.3 million on net sales of $233.7 million for the fiscal first quarter ended September 30, 2009.
Carpenter Technology Corp. reported a net loss of $9.3 million on net sales of $233.7 million for the fiscal first quarter ended September 30, 2009.
First Quarter Results — The $9.3 million net loss ($0.21 per diluted share) compares with income of $25.8 million ($0.58 per diluted share) for the year-earlier first quarter. Results included non-cash net pension expense of $0.21 per diluted share versus $0.06 per diluted share in the same quarter last year.
Net sales of $233.7 million reflect a 44% decline from a year earlier. Excluding surcharge revenue, net sales were $187.9 million, or 38% lower than the same quarter a year ago. The company had $17.8 million in positive free cash flow, which compares to $12.7 million in the year-ago quarter.
Total pounds sold declined 30% from the year-ago first quarter. Volumes shipped by the Premium Alloys Operations segment decreased 50% as a result of lower demand and excess supply chain inventory in the aerospace and energy markets. Pounds sold by the Advanced Metals Operations segment dropped 24% due to lower industrial, automotive and consumer demand.
Gross profit was $19.2 million compares with $73.7 million a year earlier. Excluding surcharge revenue, gross margin was 10.2%, compared with 24.4% last year. The lower gross margin primarily resulted from reduced demand levels and correspondingly higher volume related costs. The margin was also adversely affected by a leaner mix of products including lower demand for premium alloys for energy and aerospace applications, and the portion of higher pension expense within cost of sales.
SG&A expenses were $32.5 million, a decrease of 3% from the 2009 first quarter. Excluding the impact of changes in net pension expense, SG&A improved by 10% over last year.
Operating income was a loss of $13.3 million, compared with income of $40.3 million for the 2009 first quarter. Excluding surcharge revenue, operating margin was negative 7.1%, down from a positive 13.3% last year.
Other income was lower by $2.4 million primarily driven by reduced interest income. The income tax provision in the first quarter was a benefit of $6.8 million or 42.2% of the pre-tax loss, compared with an income tax expense of $13.9 million or 35.0% of pre-tax income a year ago.
Free cash flow, defined as cash from operations less net capital expenditures and dividends, was a positive $17.8 million, primarily reflecting a tax refund received for overpayments in the prior year and is included in other current assets on the cash flow statement. By quarter end, the company’s cash balance increased to $375 million against outstanding debt of $279 million.
Management Comments — "We continue to expect that our revenue level has bottomed this quarter and will improve quarter-to-quarter over the balance of the year,” said Gregory A. Pratt, Chairman and interim CEO. “While we predict the pace of economic recovery will vary considerably among markets, we are seeing more balanced inventories in certain segments of our business including aerospace engines, power generation and automotive. Our financial goals and expectations remain intact for the year.
“We will maintain our focus on reducing costs in all areas, improving our manufacturing efficiencies and responding to recovery within all of our markets,” said Pratt. “We will also continue our investment in key emerging markets, research and development and new market initiatives to drive long-term growth and value creation.”
Carpenter’s international sales in the quarter, including surcharge, were 72 million dollars, a 53% decrease vs. the same period last year. International sales represented 31% of total sales in the first quarter of fiscal 2010, compared to 37% in the prior year. The reduction reflects declines in energy, aerospace and automotive demand, especially in Europe. As a partial offset, our investment in China has sparked volume growth in that region.
Pension Effects — During the first quarter, the company recorded pension expense associated with its pension and other post retirement benefit plans of $15.3 million ($0.21 per share), which reflects the company’s planned non-cash net pension expense for fiscal 2010 of $61.1 million (approximately $0.83 per diluted share). The expense will continue to be allocated equally through the fiscal year. Based on changes in pension funding rules regarding interest rate assumptions, the company is no longer required to make a cash contribution to the plan in fiscal 2010.
Carpenter produces and distributes specialty alloys, including stainless steels, titanium alloys, and superalloys.
