Carpenter Technology Reports First Quarter Results
10/29/2008 - Carpenter Technology reported net income of $25.8 million on net sales of $413.7 million for the fiscal first quarter ended September 30, 2008.
Carpenter Technology Corp. reported net income of $25.8 million on net sales of $413.7 million for the fiscal first quarter ended September 30, 2008.
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Carpenter announced that it has restructured several layers of its upper management.
Positions at those levels have been reduced by 20% as a result of the restructuring.
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Pounds sold were 1% lower than the year-ago first quarter. Volumes shipped by the Premium Alloys Operations segment increased 5%, due to continued strong demand from power generation. Pounds sold by the Advanced Metals Operations segment decreased 3% due to lower automotive demand.
Gross profit declined to $73.7 million from $115.3 million a year earlier. Gross margin was 17.8%, which compares to 25.7% in the first quarter of 2008. Excluding surcharge revenue, gross margin for this quarter was 24.4%, down from 37.1% last year. Results reflect a weaker product mix, overall higher operating costs (including significant equipment upgrade activity that caused manufacturing inefficiencies in the quarter), and the impact of raw material price differences and a lower surcharge lag benefit year-to-year.
Management Comments—"Our first-quarter earnings were disappointing,” said Anne Stevens, Chairman, President and CEO. “While we anticipated a slow start to the fiscal year, our results reflect higher operating costs than expected, including inflationary pressures and unanticipated difficulties in bringing our upgraded rolling mill to full production. In addition, the effects from our raw material surcharge and hedging activities, and a leaner product mix, compared unfavorably to last year.
“Later in the quarter we also saw aerospace and oil and gas customers pushing out some orders in response to the strike at Boeing and other aerospace market conditions, and a buildup of inventory in the oil and gas supply chain,” said Stevens. “As the domestic and international economies soften, we recognize the potential for a downturn in overall market conditions as we move through the year and have taken actions internally to streamline our business and reduce our costs.”
First Quarter Operating Results—Operating income was $40.3 million, down 51% compared with $82.1 million a year earlier. The operating margin was 9.7%, which compares to an operating margin of 18.3% in the prior year. Excluding surcharge revenue, operating margin was 13.3%, down from 26.4% last year. Selling, general and administrative expenses were $33.4 million. Excluding the SG&A portion of the year-over-year increase in net pension expense, SG&A improved by 3%.
Other Income was $3.9 million compared to $6.4 million last year. The company said the difference primarily reflects lower interest income on invested cash due to general market conditions and a more conservative investment portfolio.
The income tax provision for continuing operations was $13.9 million (35.0% of pre-tax income), compared with an income tax provision of $27.6 million (33.2%) a year ago. The company expects its full-year effective tax rate to be approximately 34%.
Free cash flow was $12.7 million, which compares to free cash flow of $24.1 million in the year-ago first quarter. The company said the change reflected higher inventory levels, lower earnings, and increased capital expenditures.
Outlook—“Given the unprecedented upheaval in the equity and credit markets, coupled with the pronounced recent decline in economic activity and the extended Boeing strike, we are preparing for a potential downturn in our markets during this fiscal year,” said Stevens. “Even so, with Carpenter’s strong cash position and balance sheet and diverse market and geographic reach, we are in a good position to manage through a declining economic outlook. We intend to stay the course through this downturn, maintaining our strategic focus on research and development investment, international growth, and improving the operating performance in our mills.
“At the same time, we have taken actions to reduce our upper management positions by 20% and to lower all elements of our costs,” continued Stevens. “As part of the restructuring, Mike Shor assumed new responsibility as Executive Vice President to lead Carpenter’s total business and operations, both domestically and internationally.
“Even after these actions, with near-term economic conditions where they are, it is quite difficult for us to project our results over the balance of the year,” said Stevens. “Considering the current outlook, it is unlikely that we will achieve last year’s operating margin level or meet our growth targets for revenue and earnings this year. Nonetheless, we are well positioned financially and in our end markets to maintain good profit levels during the downturn and to resume strong revenue and earnings growth once conditions improve.”
Carpenter produces and distributes specialty alloys, including stainless steels, titanium alloys, and superalloys, and various engineered products.
