Carpenter Technology Reports 4th Quarter, Full Year Results
07/31/2009 - Carpenter Technology reports a $20.8 million loss from continuing operations on net sales of $256.9 million for the fiscal fourth quarter and $47.9 million net income on net sales of $1.362 billion for the full fiscal year ended June 30, 2009.
Carpenter Technology Corp. reported a $20.8 million loss from continuing operations on net sales of $256.9 million for the fiscal fourth quarter and $47.9 million net income from continuing operations on net sales of $1.362 billion for the full fiscal year ended June 30, 2009.
Fourth Quarter Results—The $20.8 million loss from continuing operations ($0.48 per diluted share) compares with $37.4 million income from continuing operations ($0.81 per diluted share) for the year-earlier fourth quarter. Results included restructuring costs of $7.3 million ($0.14 per share) for a facility closure.
Net sales for the fourth quarter were $256.9 million, a decline of 54% from a year earlier. Excluding surcharge revenue, net sales were $213.4 million, or 45% lower than the same quarter a year ago.
Total pounds sold reflect a 50% decline from the year-ago fourth quarter. Volumes shipped by the Premium Alloys Operations segment decreased 55% as a result of lower demand in the aerospace and energy markets. Pounds sold by the Advanced Metals Operations segment dropped 47% due to lower industrial, automotive and consumer demand.
The company incurred $7.3 million in costs in the fourth quarter associated with the closing of its Crawley, U.K., metal strip manufacturing facility, which will reduce fixed costs and utilize existing production capacity more efficiently.
Management Comments—"Despite the difficult economic conditions and a high level of capital investment, we achieved our goal of generating positive free cash flow for the full year,” said Anne L. Stevens, Chairman and CEO. “As expected, we experienced a decline in our revenues and earnings this quarter, consistent with our comments three months ago. Continuing weak global manufacturing activity affected demand throughout our customer base, and especially in our higher-value energy and aerospace products.”
“With a strong emphasis on operations, we were able to generate positive free cash flow and maintain our solid balance sheet, despite a downturn that is broader and more severe than the one we went through in 2002-2003. The company has reduced inventories, dramatically lowered production labor hours and other costs and closely managed customer receivables,” said Stevens. “We will continue to focus on reducing costs in all areas, improving our manufacturing efficiencies and preparing for the market recovery when it comes. At the same time we will pursue our growth strategy and increase our investments in research and development.”
Fourth Quarter Financial Results—Gross profit was $8.4 million, which compares with gross profit of $117.3 million a year earlier. Excluding surcharge revenue, gross margin was 3.9%, compared with 30.1% last year.
Operating income declined to a loss of $32.1 million, compared with income of $57.2 million for the 2008 fourth quarter. Excluding surcharge revenue, the Crawley restructuring and the 2008 special litigation reserve, operating margin was negative 11.6%, down from a positive 20.0% last year.
The company said the lower gross margin and operating margin were primarily the result of reduced demand levels and related manufacturing inefficiencies, as well as a leaner mix of products. Margins also were negatively impacted by about $12 million of LIFO and other quarterly accounting effects from nickel prices and reductions in inventory levels.
The income tax provision was a benefit of $13.2 million or 38.8% of pre-tax loss, compared with an income tax expense of $17.2 million or 31.5% of pre-tax income a year ago. The tax benefit reflects the operating loss and a $1.6 million favorable adjustment related to a prior tax period.
Free cash flow, defined as cash from operations less capital expenditures and dividends, was positive by $71.5 million in the fourth quarter, reflecting substantial efforts to reduce inventory levels.
FY 2010 Outlook—"We expect to begin to see modest improvement in our business through the year,” said Stevens. “Automotive demand may see some limited recovery as a new model year starts, while consumer and industrial demand will be tied largely to housing starts and overall consumer confidence. In our aerospace market, the most recent airline build projections indicate that the second half of our fiscal year may show improvement. The energy market, though, appears to be headed for a more extended downturn that could last later into 2010.
“Based on current economic conditions, we anticipate that overall demand across our markets will probably bottom out during our first fiscal quarter, with a gradual recovery after that,” continued Stevens. “Total revenues in FY 2010 will still likely be less than in FY 2009.
“Our top financial goal is to generate positive free cash flow for the full fiscal year, which will preserve our strong balance sheet. At the current volume level and product mix, we expect to post a net loss for the first quarter. Earnings should improve during the year as volume improves, and, based on current market expectations, we should finish the full year with positive earnings per share, despite lower revenue and the increase in non-cash pension expense.
“Our healthy balance sheet and cash generation ability will help carry us through this downturn as we prepare for the recovery,” said Stevens. “We are also looking beyond the current conditions and maintaining our focus on R&D, new products and global marketing programs to be ready for future growth opportunities.”
Carpenter Technology produces and distributes specialty alloys, including stainless steels, titanium alloys, and superalloys, and various engineered products.
