Carpenter Technology Reports Fiscal 4th Quarter, Full-Year Results
08/01/2008 - Carpenter Technology reports net income from continuing operations of $46.9 million on net sales of $556.3 million for the fourth quarter, and net income from continuing operations of $209.9 million on net sales of $1953.5 million for the year ended June 30, 2008.
Carpenter Technology Corp. reported net income from continuing operations of $46.9 million on net sales of $556.3 million for the fourth quarter, and income from continuing operations of $209.9 million on net sales of $1953.5 million for the year ended June 30, 2008.
Fourth Quarter Results—The $46.9 million income from continuing operations ($1.01 per diluted share) includes a special $0.08-per-share reserve for litigation matters. This compares with 2007 fourth quarter income from continuing operations of $58.9 million ($1.12 per diluted share).
Net sales from continuing operations were $556.3 million, 4% higher than a year ago. Excluding surcharge revenue, net sales from continuing operations were $391.3 million, 12% higher than last year.
Pounds sold were 15% above the year-ago quarter. Volumes shipped by the company’s Premium Alloys Operations segment increased 30%, due to continued strong demand from energy and aerospace, while pounds sold by the Advanced Metals Operations segment increased 10%, reflecting improvement in the industrial and consumer markets.
Although volumes grew over the quarter, gross profit declined to $117.3 million vs. $120.8 million a year earlier. The company said that results reflect LIFO accounting effects related to changes in inventory levels and year-to-year raw material costs, other impacts from the year-to-year difference in raw material costs, significant equipment upgrade activity, and general inflationary pressures.
Gross margin was 21.1%, which compares to 22.7% in the 2007 fourth quarter. Adjusted for the dilutive impact of the surcharge revenue, the year-to-year difference in the lag effect in the company’s surcharge mechanism, and the LIFO inventory effects, fourth quarter gross margin on a comparable basis would have been an estimated 30.0% compared with an estimated 32.5% in the 2007 fourth quarter.
Operating income was $72.7 million, down 17% compared with $87.4 million in the fourth quarter of 2007. The company said the decline reflects lower gross profit, and an $11.2 million increase in SG&A expenses.
Adjusted for the lag effect, surcharge revenue, other inventory effects and the special litigation reserve, fourth quarter operating margin would have been an estimated 18.6% versus an estimated 22.9% in the same quarter a year earlier.
Other income was $1.9 million, compared with other income of $6.6 million in the 2007 fourth quarter. The decrease primarily reflected lower interest income from invested cash.
The income tax provision for continuing operations totaled $23.2 million (33.1% of pre-tax income), compared with an income tax provision of $29.5 million (33.4%) in last year’s fourth quarter.
Management Comments—“We finished the year with good growth momentum due to strong demand in the global energy and aerospace markets, and improving demand in our industrial and consumer businesses,” said Anne Stevens, Chairman, President and CEO. “Our international sales also continued to grow at a double-digit rate year on year, and now account for 34% of total annual sales. We were pleased to achieve record full year EPS results for the fourth consecutive year. We continue to drive operational excellence initiatives to improve our results, and expect to complete the expansion of our premium melt facilities by the turn of the calendar year, which will provide needed additional capacity.”
Fiscal Year 2008 Results—Income from continuing operations was $209.9 million ($4.31 per diluted share), which compares with 2007 income from continuing operations of $215.2 million ($4.09 per diluted share). Net sales from continuing operations were $1.953 billion, 6% higher than a year ago. Excluding surcharge revenue, sales from continuing operations were $1.369 billion, 4% higher than a year ago.
Pounds shipped were 2% lower than last year. Pounds shipped by the company’s Premium Alloys Operations segment increased 21% year on year, while the Advanced Metals Operations segment declined 7%. Gross profit was $457.2 million, compared with $427.5 million a year earlier.
Operating income was $309.1 million, a 2% increase compared with $304.4 million in 2007. Operating margin excluding surcharge was 22.6% in FY2008, compared to 23.1% in 2007. Other income was $24.2 million, compared with other income of $30.3 million in 2007.
The income tax provision for FY2008 continuing operations totaled $102.9 million (32.9% of pre-tax income), compared with an income tax provision of $96.8 million (31.0%) last year.
Other Financial Items—Excluding the acquisition and divestitures, free cash flow was $61.7 million for the fourth quarter and $111.8 million for the year. Full-year capital expenditures totaled $118.9 million, primarily reflecting Carpenter's ongoing expansion of its premium melt capacity. Total FY2007 capital expenditures were $47.1 million.
FY 2009 Outlook—“In the 2009 fiscal year, we expect continuing strong growth driven largely by the favorable industry dynamics in our key aerospace and energy markets,” said Stevens. “Our first half will be subject to capacity constraints on our premium melt products that should be relieved when the new melting facility and other equipment upgrades come on line around the beginning of the 2009 calendar year. We are well situated to respond to the challenges that the current economic conditions are presenting, and anticipate greater demand for our high performance materials as we pursue aggressive goals for new product development. We will also continue our focused efforts on operational excellence that are transforming a 120-year-old business.
“We expect another year of record earnings and strong free cash flow,” continued Stevens, “although several factors will lead our second half comparisons to be stronger than the first half. Of note, we have had significant planned outages including an upgrade to our major rolling mill and an extended maintenance outage on our cleaning facilities that will carry into the first quarter.”
Discontinued Operations—On June 30, 2008, Carpenter completed the sale of its metal shapes business, Rathbone Precision Metal, to Calvi Holdings, Srl, for $17.5 million in cash. Carpenter recorded a pre-tax gain in the quarter of $8.1 million, or $0.09 per share on an after-tax basis.
Results for the metal shapes business were reported as discontinued operations for the fourth quarter. Income from discontinued operations of $6.5 million compares with income of $2.4 million for the fourth quarter 2007.
Carpenter Technology produces and distributes specialty alloys, including stainless steels, titanium alloys, and superalloys, and various engineered products.
