Carpenter Technology Corp. today reported record net income of $35.3 million on record net sales of $342.1 million for the third fiscal quarter ended March 31, 2005. The company says results reflect favorable market conditions and a continued focus on costs through lean and variation reduction.

Third Quarter Results—The $35.3 million net income ($1.38 per diluted share) compares to net income of $10.3 million ($.42 per diluted share) a year ago. Net income in the third quarter a year ago included non-cash pension and retiree medical expenses (net pension expense) of $2.0 million after-tax ($.09 per diluted share). In the recent third quarter, Carpenter's net pension expense was less than $.01 per diluted share.

Net sales of $342.1 million compare with $280.4 million for the same period a year ago. The 22% increase reflects an improved product mix, increased base selling prices and surcharges to help recover high raw material costs. Excluding surcharge revenue, sales increased approximately 17% from the third quarter a year ago.

Sales increases (compared to the year-ago quarter) by market included +50% for aerospace; 31% for medical market sales; +23% for industrial market sales; 13% for power generation market sales; and 12% for automotive market sales. Sales to the consumer market declined 4% from the same quarter a year ago due primarily to an intentional reduction in the sale of marginally profitable products.

Over the same time period, sales outside the United States increased 22% percent, and represented 28% of third quarter sales. Sales outside the United States continued to benefit from the effects of a weaker U.S. dollar, strong growth in Asia and increased demand for aerospace and medical materials.

Gross profit increased to $85.2 million (24.9% of sales) from $49.3 million (17.6% of sales) a year ago. In the third quarter a year ago, the gross profit reflected net pension expense of $2.5 million (0.9% of sales). The gross profit in the recent third quarter included net pension expense of $0.2 million. The gross profit improvement reflected a better product mix, higher base prices and a continued focus on lean and variation reduction.

Operating income increased to $56.6 million (16.5% of sales) from $19.5 million (7.0% of sales) a year ago. The increase reflects the improvement in gross profit and a decline in selling and administrative expenses compared to the quarter a year ago. Free cash flow was $46.1 million, compared with free cash flow of $47.4 million in the third quarter a year ago.

Carpenter finished the quarter with total debt (net of cash) of $116.8 million. Carpenter's net debt amount was $60.0 million lower than at the end of the previous quarter and $148.9 million lower than a year ago.

Year-to-Date Results—Net income for the first nine months of the current fiscal year was $87.6 million ($3.48 per diluted share), which compares with net income of $18.3 million ($.75 per diluted share) for the same period a year ago.

Net sales of $951.8 million compare with $719.9 million for the same period a year ago. Free cash flow was $88.7 million, compared to free cash flow of $79.0 million for the same period a year ago.

Comments—"Favorable market conditions, strong demand for higher value products particularly from the aerospace market and our continued focus on operational excellence resulted in record earnings in the third quarter," said Robert J. Torcolini, Chairman, President and CEO.

"The quarterly results reflected the continued operating leverage created through our relentless focus on lean and variation reduction. We also benefited from a shift in product mix to higher value materials as a result of robust demand from the aerospace and power generation markets. Additionally, margins improved from an intentional reduction in the sale of marginally profitable products."

Cash Flow and Liquidity—Carpenter has maintained the ability to provide cash to meet its needs through cash flow from operations, management of working capital and the flexibility to use outside sources of financing to supplement internally generated funds.

Free cash flow for the third quarter was $46.1 million, compared to $47.4 million a year ago. Through the first nine months of fiscal 2005 free cash flow was $88.7 million, compared to $79.0 million for the same period a year ago.

Carpenter believes that its current financial resources, both from internal and external sources, will be more than adequate to meet its foreseeable needs. At the end of the third quarter, Carpenter had approximately $185 million available under its credit facilities.

Outlook—"We continue to expect that our operating performance will show year-over-year improvements as market conditions should remain favorable," Torcolini said. "The robust activity throughout the aerospace market is creating strong demand for our higher value materials including specialty alloys, titanium and ceramics."

Accordingly, the company expects that free cash flow will be in excess of $120 million for the current fiscal year. Carpenter had previously estimated that free cash flow would be in excess of $100 million.

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