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Carpenter Technology Reports Fourth Quarter Results
07/29/2011 - Carpenter Technology reported net income attributable to Carpenter of $25.5 million on net sales of $483.6 million for the fourth quarter, and net income attributable to Carpenter of $71.0 million on net sales of $1.675 billion for the full year fiscal 2011.
Carpenter Technology Corp. reported net income attributable to Carpenter of $25.5 million on net sales of $483.6 million for the fourth quarter, and net income attributable to Carpenter was $71.0 million on net sales of $1.675 billion for the full year fiscal 2011.
Fourth Quarter Results — The $25.5 million net income ($0.57 per share) attributable to Carpenter compares to net income attributable to Carpenter of $5.9 million ($0.13 per share) for the year-earlier fourth quarter. Results were impacted by $2.4 million ($0.04 per diluted share) in costs related to the acquisition of Latrobe Specialty Metals; excluding these costs, net income attributable to Carpenter
Net sales of $483.6 million reflect a 33% from the prior year. Excluding surcharge revenue, net sales were $352.4 million, up 31% from a year ago.
Total pounds sold were 12% higher than in the year-ago fourth quarter, with the Premium Alloys Operations (PAO) segment up 40% and the Advanced Metals Operations (AMO) segment up 7%.
Gross profit was $77.0 million compared with $43.7 million in the year-ago fourth quarter. The company said the increase was driven by higher volumes, an improved product mix, higher prices and better operating performance.
Management Comments — “We finished the year with another strong quarter of operating performance,” said William A. Wulfsohn, President and CEO. “Revenue growth is outpacing volume gains as we continue driving our mix management and pricing initiatives. These actions, combined with our cost focus, are translating top-line growth momentum to our bottom line.
“Over the past year, we have seen strong, sustained demand for our products. As a result, we are actively seeking ways to expand our capacity to facilitate further growth. We have announced a facility expansion in Reading targeting premium remelt, forge finishing and annealing operations and we are preceding with capacity investments in our Dynamet titanium wire fastener and Powder Products businesses. Our recent agreement to acquire Latrobe Specialty Metals, while providing many strategic benefits, will also help expand our capacity and facilitate further growth.”
Financial Results — SG&A expense as a percentage of revenue (excluding surcharge) was 1.2% lower than the prior year. SG&A expense in the current quarter was $39.6 million (11.2% of revenue) compared with $33.5 million (12.4% of revenue) for the year-ago fourth quarter. The year-over-year increase is due to the addition of Amega West overhead cost and higher compensation-related expense.
Operating income was $35.0 million compared with $10.2 million a year earlier. Excluding surcharge revenue and pension earnings, interest and deferrals (EID), operating margin was 12.4% for the quarter and 13.1% excluding acquisition-related costs. This compares to 7.3% in the year-ago fourth quarter.
Other income was $2.8 million compared to $0.9 million in the year-ago fourth quarter, with the difference primarily due to residual payments received under the expired CDSOA anti-dumping subsidy program. The provision for income tax was $7.7 million (23% of pre-tax income) compared to $0.7 million (11% of pre-tax income) in the year-ago fourth quarter.
Free cash flow, defined as cash from operations less capital expenditures, dividends, and the net impact from the purchase and sale of businesses, was $61.5 million, driven by working capital improvements. For the full fiscal year, free cash flow was a negative $88.9 million due to the cash purchase of Amega West and Oilfield Alloys, as well as increased working capital to support business growth.
Fiscal Year 2012 Outlook — “Demand growth remains strong in our strategic end markets,” said Wulfsohn. “Several of our largest customers are seeking to expand and extend our supply contracts. Carpenter revenue, excluding Latrobe, is still expected to grow by more than 10% in fiscal year 2012. As previously communicated, operating income, excluding pension EID, on the base Carpenter business should be approximately 50% higher than fiscal year 2011. The full-year tax rate is projected to be 33% and interest expense should be about $7 million higher based on $150 million of incremental debt.
“Free cash flow is expected to be slightly negative after factoring in higher capital spending of about $200 million aimed at capacity expansion, and a modest increase in working capital to support business growth.
“We are also excited about the Latrobe acquisition as it plays an important role in Carpenter’s growth strategy,” continued Wulfsohn. “Latrobe has a well-positioned business portfolio that is also benefiting from strong customer demand. We expect the combined business will enable production efficiencies which will result in expanded production capacity The combined entities also have a larger critical mass to justify the next major increment of premium capacity expansion. The Latrobe acquisition, including transactions costs, should be accretive in year one depending on the closing date, and strongly accretive in later years with the benefit of significant synergies.”
Pension Effects — During the fourth quarter, the company recorded $15.2 million ($0.21 per diluted share) of expense associated with its pension and other postretirement benefit plans. For the full fiscal year, non-cash pension expense was $60.8 million ($0.84 per diluted share). Due primarily to improvement in equity markets during fiscal 2011 that enabled pension assets to grow by $78.6 million and a slightly higher discount rate assumption, non-cash pension expense in fiscal year 2012 will decrease to $39.4 million ($0.55 per diluted share). The expense will be allocated equally through the fiscal year. The company currently expects to make cash contributions of approximately $28 million in fiscal year 2012.
Carpenter produces and distributes specialty alloys, including stainless steels, titanium alloys, and superalloys.
